33.5 – The High Price of College Textbooks
Learning Objectives
By the end of this section, you will be able to:
- Apply the heterodox concepts of this chapter to the question of why college textbooks cost so much
In this concluding section of the chapter we’ll look at a question you’ve probably asked yourself: why do college textbooks cost so much? The question is particularly interesting for economic theory. Nationally, textbooks prices have risen more than three times the prices of other goods and services in the economy—an increase from the 1977 to 2015 of 1,041%, reports ABC News. In September 2016, the average undergraduate student was spending just shy of $1,300 a year on textbooks and supplies. That’s no small sum.
Standard orthodox analysis would look for low elasticities of demand and a lack of competition to explain high prices. Question: as a student, is your demand for college textbooks elastic or inelastic? Why?
Likely, you answered ‘very inelastic’ since you have little choice in buying a textbook that is required for a course. In fact a 2014 Student PIRG survey found that two thirds of students had foregone buying at least one textbook due to cost. Not surprisingly, almost all of those students indicated concern that the decision would impact their grades negatively.
As for competition in the textbook publishing business, it may not surprise you to learn that, like in most other markets, there are only a handful of large corporations controlling the bulk of the college textbook supply. International corporations, which in many cases have existed for over a century, dominate the global market for these products, bringing in billions of dollars in revenue each year. While not a pure monopoly, it would certainly seem that this industry is closer to our orthodox monopoly model than to perfect competition. The outcome of this captive-market situation, as you’ve seen in a previous chapter, is clear: fewer students purchase textbooks than would like to, and they pay higher prices than would exist under more competitive conditions.
But, then, is competition the solution? Certainly, the industry meets the definition of high concentration. Publishers appear to enjoy significant market power, especially in setting their own prices, rather than taking the competitive market price as given. But, if we accept that these large corporations are not price takers in the markets for their books, we still have to answer: how—that is, for what reasons—do they determine the prices they will charge? And this is where the business model becomes important.
The mainstream assumption that firms, always and everywhere, maximize profits suggests that output is being set according to marginal cost and marginal revenue, and that the low elasticity of demand (students, after all, are required to purchase these books) allows publishers to raise prices well above the actual costs of production. Firms produce to maximize profits, and a lack of competition allows the