Wednesday, September 26, 2007


In the last legislative session, the Oregon House passed a bill aimed at reducing the burden of expensive textbooks on college students. Being a professor myself and dealing with the issue of textbooks I was very interested in this bill as I am acutely aware of the burden that high priced texts creates for students. But is this legislation sensible, will it serve to reduce the burden on students and is it a good example of government intrusion in a market to correct a market failure? Sadly, no. I am convinced it is unlikely to make things better and I fear that it may make actually make things worse. Oh why didn't they talk to an economist before doing this??

Here is the background: textbooks are enormously expensive. They are so expensive because they are expensive to produce and sales are relatively low. Publishers routinely push new editions very quickly with the express aim of circumventing the used textbook market. Professors who write textbooks are not well compensated save for the few who write introductory textbooks for popular subjects that become very well adopted. Though it appears to be a monopoly to a student (and is once a professor selects a particular textbook) it is actually a very competitive industry. The retail end has become competitive as well - no longer are students stuck with the campus bookstore, there are many internet textbook sellers, for example. In fact, I have a voice mail message this morning from a rep trying to get me to switch to 'their' international economics text that is 'just updated and covers the new US trade policy!" So it is not the publishers that are making abnormal returns on texts. So while new editions are produced probably too frequently, essentially textbooks are expensive to buy because they are expensive to make.

The legislation (in the words of the Ashland Daily Tidings):

The bill requires publishers of college textbooks to provide professors and private and public colleges and universities with information regarding their products, including the prices and the frequency of updated editions.

The bill would also make publishers offer higher education institutions the option of ordering each component of bundled textbook packages separately, and disclose the price for textbooks purchased without bundled items such as workbooks and CD-roms.

So how will this legislation potentially help? Well, there is one aspect I am fairly neutral about. When publishers send me info about texts or examination copies of texts, the list price is never given. I select the text I like but then always go and check the prices (it is easy these days, just a few key strokes) to make sure the one I chose is not abnormally expensive. I can imagine may professors never bother to check, but the thing is that in my experience, publishers price very similarly. I have never changed my decision on a text because I found the price too high. This suggests that price competition does exist. But it is probably not as fierce as it would be if prices were provided to professors - and providing professors with list price info is basically costless to publishers. So I have no problem with this, though I am not sure that it is necessary, and I am very doubtful that there will be much gained from it. But if it is costless and may lead to some improvement, why not? (NB: I think if there were a federal requirement that textbook publishers were required to print the list price on the covers, there would be some improvement) Here's why not: if there already is price competition and this makes it a bit worse, publishers will respond by not trying to make new textbooks for categories already well populated - so while price competition may go up, quantity competition may go down. There may end up being only three competing intermediate microeconomics texts to choose from instead of about eight now. The end result may not be lower prices. (By the way, I am not sure how information on frequency of updates really matters if the price in for is provided)

The second part of the legislation is a bigger problem. I understand the motivation. While I rarely have been forced to order a bundle, it happens occasionally. By requiring textbook publishers to offer non-bundled texts and components, it stops this practice. Case in point: this semester the text for my class includes access to the publisher on-line interactive study tools. They are nice, but many students will not want this access. They have no choice if they go to the bookstore. They publisher is doing this to force the purchase of a new text, but I have found numerous used texts available on the internet, so if a student does not wish access there is a easy option. What is the problem with this legislation? Well publishers who bundle can offer the bundle at a cheaper price than the a la carte prices. So students who do want the bundle, or need the bundle will end up paying more not less. So it is again not clear to me that the net effect of this legislation will be students paying less for textbooks.

Now let's turn to the meta-analysis: where is the market failure and is the remedy justified? This is perhaps the reason I have the most problem with this legislation - I can't identify the market failure! There may be one in terms of the professor insisting on a particular text in class, but I see no easy way around that. The market has evolved so that used texts and discounted new texts are easily obtained, publishing academic texts in the US is very competitive and professors are, in my experience, acutely aware of the burden of high text prices. This legislation seems to be aimed at lazy professors who blithely order texts without paying attention to price or bundles. But I find this caricature to be inaccurate. So it is a legislation that I don't think will do much harm or be much of a burden on publishers, but I think is unnecessary and smacks of populism on the part of a state government that is currying favor with college students that they have been screwing for the last 15 years bu underfunding state higher ed.

Finally an economist's note. One of the reasons new texts are so pricey is the fact that there are used texts around. In fact, without used texts there could be economies of scale in the new text industry that would lead to much lower prices. I try and not require anything out of a text that could not be found in a used older-edition text (not always possible). But I realize that is a small way, I am contributing to the high price of new texts. A conundrum, for sure, but publishers are not evil student's blood sucking corporations - they are typical businesses competing in a difficult market.


Jeff Alworth said...

A few thoughts which you may puncture like soap bubbles as they float by.

First, I question the idea that this is in fact a "market." The consumer doesn't actually have any choice--the purchase decision is getting made by intercessors who, as you note, don't take price into account in the least. Since consumption decisions are decided by the professors, are they actually making choices based on the best scholarship? Can they make reasonable decisions when there are new textbooks every year? Is the competition, such as it is, effective in producing the best product at the lowest price? I doubt it.

My suspicions are based on a secondary point: that the texts are produced at a minimum of cost. Since the market does not demand cheap pricing, what would be the motivation for publishers? Since they have to woo ignorant professors with unreviewed products, they have the opposite motivation. (You may do a respectable job of reviewing texts, but where's the evidence that the professors at the nation's 3000 colleges do in the aggregate?)

Finally, you say that the presence of used texts actually drive up the price, but this seems at odds with the observation that "publishers routinely push new editions very quickly with the express aim of circumventing the used textbook market."

I do, however, agree that the second remedy seems like a poor way to solve the problem.

Patrick Emerson said...

I guess I would put it this way: as a professor, I am a proxy for my students when I choose a text. As they don't have the knowledge to discriminate between texts on a subject they have not yet studied I can be a more informed consumer. I know (because students complain loudly and I empathize with them) that price is a prime consideration. I also know that features such as many real world example and clear graphs are also important. I think about this a lot as I go and select a text. Usually I have about 5 or 6 to choose from and I am constantly harassed by reps pushing their text for a particular subject (suggesting competition in the publishing industry). I routinely find little difference in prices. Granted, this market is not perfect and not completely competitive, but it seems to fulfill the major requirements. Enough so that I suspect textbook publishing is not an abnormally profitable business.

But the real point of my post is: the question of is the policy necessary and does it work? We are arguing about whether there is a real problem. Perhaps there is, but I don't think this policy will do much good. Pricing info is pretty easy to find and students are both price sensative and not shy about expressing their displeasure with text prices. Bundling can be both good and bad, and rare is the occasion that a student is forced to buy the bundle, so I think that part is unlikely to help.

By the way, what may be the great hope in all of this is the recent emergence of an electronic textbook industry. This may be the first real solutuion to high text prices - don't publich them at all, make them all virtual. I think we are not far off from the time this becomes the norm - but again, this is a market driven solution, not government.

Anonymous said...

The market failure here may in fact be the instructors. Here is my reasoning:

In most subjects, especially subjects taught year after year, a certain core material can be ascertained. This material is generally in the public domain, and can readily be divined by most competent professors. (an example here is the 20 chapter text, of which 10 chapters are realistic for the time given). And in this core information, it is reasonable to assume that any competent person could find the reference information available readily online or at a local library. Thus, textbooks are a convenience.

So, if we can assume the primary value in a text is convenience, and that the flexibility model of current institutions prevent the publisher from reducing expense by reducing the subject matter in order to allow for greatest convenience, we have a conundrum of two market factors at odds against each other. The desire for convenience, and the need to meet all anticipated material.

However, this is where I think the market failure occurs. For a course of say 30 students, a professor might need 10 chapters worth of material. The current option involves the professor taking a fixed amount of time to determine which text meets his need of convenience at the lowest cost.

However, for the same material cost to that one class applied against the professors time, an instructor may put together from public sources the same content information in a custom tailored package for the students. While for information that changes rapidly this might retain higher costs year to year, many introductory subjects and honestly most higher level subjects have little year to year modification. My physics text from 1991 is fundamentally the same exact text as 2005, with only the last few chapters (which are never actually taught) changing.

From an economic point of view, this is absolutely a more cost efficient system for students, who would pay a fraction of textbooks costs, and for professors who, once developed, could rely on having a readily available pool needing only slight modification to reflect new advances. As the material would be tailored to their specifications, the lost time in development would easily be replenished by the time saved in instruction by familiarity. As well, many core courses, once developed, would be able to be used year after year, allowing the costs to the students to be spread out.

So, lets apply this to a real world situation. I am taking a Economics (ahem) course where the 'prescribed text' (though graciously not required as such) is $145 at the local school bookstore. There are 23 students at present in the class. At half that amount, the professor could have spent a week of time putting together public material to cover each topic in the 11 week course. This would provide the equivalent of $82k a year. (Now I am choosing to discount the cost of distribution, as well as the time spend evaluating and preparing texts as I believe they are zero sum.) This exceeds the current average salary for an instructor in my state of Oregon (again, I am speaking roughly, as benefits make this number 50% higher).

Thus I believe the current market failure is the the perceived value of time by the instructors to their actual time value. This 'convenience' of textbooks is a manifestation of not wanting to add time on to what may already be a considerable burden for a course offering. However, if looked at offset with texts, and the time required to select, order, familiarize with a new version etc, I believe that this is a market loss to the University, professors and students.

Patrick Emerson said...

This is a good idea (looking for material in the public domain). However there are many areas where information from 20 years ago would be inadequate (a lot of Money and Banking, for instance ;-) )

But I don't agree that instructors are the market failure, I think a better characterization is that instructors do not have sufficient incentives to keep textbook costs for students to a minimum. I arged that I am sensitive to student budget constraints and often hear complaints from students, but I am sure that there are many instructors that are not as sensitive. This is because there are small to no incentives to keep text costs down. I agree. I believe that despite this the textbook publisher are not the problem, but perhaps the system of new texts for all subjects is.

BTW, why should we have textbooks anyway. Would anyone be in favor of a professor who wrote careful lectures on the board and tested solely off those notes? This would save $100 but would require cafreful notetaking, careful attention in class and mandatory attendance. Is it worth it?

Anonymous said...

In this era of web 2.0, we easily get nice & updated information for research purposes... I'd definitely appreciate the work of the said blog owner... Thanks!

write term paper-Essay Writing