Textbook economics: More than just price
Like clockwork at the beginning of the year, there appears in every university’s newspaper an editorial or two about textbooks and their extremely high prices. Generally, there are some suggestions about ways to make the books cheaper or ideas that would otherwise purport to save students money. I love the optimism, I honestly do. I am, however, an economics major. Thomas Carlyle, the Scottish historian, has called my field “the dismal science,” and he’s spot-on with that moniker. Here’s the truth: There is no such thing as a cheap textbook. Moreover, there never will be.
The problem with just about every article that comes out attacking the textbook industry is that the author fails to take into account the hidden production costs of making the books. Allow me to paraphrase Dr. Karen Braun, a former professor of mine and current professor of accountancy at Case Western Reserve University. She co-wrote a textbook on managerial accounting. According to Braun, the textbook that retails for $210 costs roughly $4 to print, bind and ship.
Now, I can see exactly where arguments against the exorbitant prices of textbooks come from. They spawn from people seeing the production cost and the production cost alone. In that case, somebody’s making $206 in pure profit. However, this is not entirely the case. The economics of the textbook market are very different from the economics of the luxury goods market, where an item like a pair of Marc Jacobs shoes, which actually do cost nearly nothing to make, routinely run $750 a pair and yield extraordinary profits per unit sold.
Claiming that the retail price is just a many-thousand percent markup of a $4 book is utterly incorrect. Publishers incur tens of thousands of dollars in expenses related to the creation and sale of a textbook and its related materials. To go back to Dr. Braun’s accounting text, the standard set of Powerpoint slides that comes with the teacher’s package costs in excess of $15,000 to have designed professionally and revised and to have clip-art pictures licensed for digital distribution. Costs certainly don’t stop there. Teacher guides and portfolios with information on how best to present the material to students must be prepared. And no, we’re not done yet.
After the entire package is created, the books still need to be sold. Enter the regional sales representatives. These people travel from school to school trying to sell professors on using specific textbooks. Publishing conglomerates like Thomson Reuters and Pearson, as well as every other textbook publisher on the planet, hire dozens, and their salaries must be paid. This factors into the cost of the book too. Finally, most publishers have buy-back agreements. They are thus liable for refunding money to bookstores for unsold textbooks. That’s another routinely incurred cost they must deal with.
In economics there’s a concept called “marginal cost.” In short, it’s the production cost of each subsequent item produced. The marginal cost to produce a textbook, as stated above, is about $4. But it’s a fallacy to argue that those few dollars are the true cost of the book. The marginal cost of the second through nth books may be $4, but the marginal cost of the first textbook contains the thousands of dollars of design costs previously incurred by the publisher. The fixed costs associated with the first book must be taken into account.
If you want to read an up-to-date textbook—a proposition that I concede is probably much more important in a science book than in an ancient history text—you have to pay for it. High prices are not something that you can simply overcome by, as some might suggest, selling loose-leaf or electronic editions. That’ll have nearly no impact on price. Additionally, the argument that prices are high because publishers must make up for the money they don’t collect when books are resold is an irrelevant catch-22.
Textbooks are expensive because they cost a lot to create. It’s as simple as that. An overwhelming majority of production costs is sunk into research and design and can only be recouped through higher retail prices. It’s a sad fact of the textbook market. I don’t like it any more than the next guy, but that’s just how it is.