For years college textbook prices have risen faster than inflation – slower than health care prices, but faster than, yes, gasoline prices.
In response, the Oregon Legislature recently required publishers to “unbundle” textbooks from auxiliary materials and to make more information available. Such concern for students after Oregon shifted more than half of college instructional costs onto students, an additional $3,000 or so per year, but that is another story.
Why have textbook prices gone up so much? Textbook markets tend to be competitive, so price gouging isn’t a likely answer. Similarly, most professors are keenly aware of prices of textbooks, so cavalier attitudes by professors is also not a good explanation.
Other explanations are sometimes correct, but not sufficient to fully explain the increases. For example, Oregon’s requirement that textbooks be available in unbundled form may help in some cases. Similarly, the premium to education and advanced skills has grown sharply, and textbooks are intensive in both, so textbook prices reflect this premium. Even the market for dull professors is much brighter today.
Most misleading, though, are explanations that confuse cause and effect. For example, textbook revisions once occurred no more frequently than about every four to six years. Today, some cycles are only two to three years, which involve much higher costs per book. But why have cycles shortened?
When I was a student years ago, we purchased new textbooks and rarely sold them back. It was an age of “print” not “electronic” media, and most students retained textbooks for a personal library. Also, students at public colleges paid only about one-third of the cost of instruction, with the state picking up the rest.
Today’s world is different. Knowledge is widely available via electronic media, and students now pay about two-thirds of the cost of instruction, roughly double, because states have reduced their share by about half. So, most students today resell their textbooks and, if possible, buy used ones.
Curiously, the resale market raises the price of new textbooks and shortens revision cycles. Consider a much simplified illustration. Suppose a publisher revises a textbook every other year, with fixed development costs of, say, $500,000, and additional costs per book of $30. Suppose too that sales are a fixed 10,000 each year, with no opportunity for students to resell textbooks. If the publisher sets prices just to cover these costs, then the textbook price will be $55. A little arithmetic proves the point: Divide $500,000 plus 20,000 textbooks times $30 each by 20,000 students.
Now suppose that all students who buy a new textbook plan to sell it back for resale. The publisher now must cover the $500,000 in fixed development costs over only the first year’s sales (the first 10,000), and the new price will be $80, not $55. Again, a little arithmetic: Divide $500,000 plus 10,000 textbooks times $30 each by 10,000 students.
But what about the net price to the student who resells the textbook? If the textbook is sold back at, say, half the new price, the net cost to the student is now $40, not $80.
In the second year students now buy used textbooks at $40, plus say 15 percent for the book shop’s costs, or $46. This price is not just lower than the now higher $80 price for the new textbook, but also lower than the $55 price when no textbooks were resold.
Overall, the net cost of textbooks, averaged over all students in both years of the two-year cycle, is now $43 – the average of $40 and $46. The emergence of a resale market increased the price of new textbooks from $55 to $80 (a 45 percent increase), yet reduced the net cost averaged across all students from $55 to $43 (a 22 percent decrease).
Thus, most students prefer to buy only used textbooks (and to be able to resell them), which has led publishers to shorten publication cycles, since they can only recapture the up-front development costs of the textbooks from the first sale of a new textbook. Many textbooks seem to have settled into two- or three-year revision cycles, as compared to four- or five-year cycles. The emergence of the resale market, thus, has shortened publication cycles and led to higher prices for new textbooks. So, the next time you hear that textbook prices have risen faster than inflation, remember that the statement likely refers only to the price of new textbooks, not to the average net cost to students. Prices for new textbooks substantially overstate the net cost, because the proportion of resold textbooks has increased sharply.
Even so, nothing here is intended to diminish the very real issues faced by lower and middle income students at public colleges who are burdened with higher shares of the cost of their education by myopic state legislatures and who also struggle to afford textbooks. I certainly share those concerns.
Joe Stone is the W.E. Miner Professor of Economics at the University.