The Economic Behind Overpriced Textbooks

The price of textbooks has risen faster than the price of health-care, houses, and, of course, inflation. While everyone knows that textbooks are expensive, have you ever wondered why?

How Expensive Have Textbooks Become?

The price of university textbooks has risen dramatically over the past three decades and show no signs of slowing down. While the price of everything increases with time due to inflation some products exceed the consumer index and rise faster than inflation. This has occurred to the cost of things like medication and housing. However, nothing has risen as rapidly as the cost of university textbooks. According to the Bureau of Labor Statistics, the price of textbooks has increased by 812% since 1978. To put that in perspective, a textbook that would have cost $120 in 1978 would cost $974.40 in 2010.

It’s A Niche Market

The first thing you need to understand about university textbooks is that they have a very small customer base. Unlike more common publications, such as novels, how-to books and biographies, there are very few people who will ever need a book on Organic Chemistry or Topology. As a result, there are few economies of scale to lower the price.

College textbooks are actually really expensive to publish, they’re estimated to cost around $750,000 to bring to market. Textbooks have a unique page layout which requires skilled labor. Typesetting even a single page full of tables, figures and references takes a very long time. Additionally, a textbook must be written by an expert in the respective subject. These experts are highly qualified and must be paid well for their time.

Normally, the high cost of writing a book would be spread out over millions of people. For example, if you were to publish a popular novel which sold a million copies and charged just $1 per copy you’d still generate a million dollar in revenue. However, when you publish a book on advanced linear algebra, that’s only going to be used by a couple thousand people and you need to charge more to recoup cost and generate a profit.

It’s A Captive Market

While the market for textbooks is relatively small, there is actually very little choice from the consumer’s end. Once a professor has chosen a textbook for a class, the students must purchase it if they hope to pass. Additionally, while textbooks are not a true monopoly, since many different companies produce textbooks, schools will often choose one textbook and make it mandatory for the students to purchase.

Normally, a publisher must compete with dozens of similar products. For example, a For Dummies book must compete with other how-to publications, such as The Idiots Guide and Wiki-How. However, students can’t simply purchase another textbook which covers the same material because courses are designed around a specific textbook. As a result, students are stuck in a captive market where they must choose to either paying the high price or not make the purchase at all. Publishers know that students will purchase the textbook regardless of how high the price is so there is little incentive for them to lower the price.

It’s An Inelastic Market

Market Elasticity is an economic term referring to the measurement of how responsive a market is price changes. An Elastic Market is one where a rise in price will result in a drop in demand, while a drop in price will result in higher demand. An Inelastic Market is one where a rise in price does not translate to a drop in sales. College textbooks are an example of an Inelastic Market because students will always buy the textbook even when prices increase. There are three major factors which make the textbook market inelastic.

  • Government Aid Program – There is usually a disconnect between the actual price of the textbooks and the price paid by the consumer. Similar to medication, consumers who have a government subsidy will not pay the full price. This disconnect makes it easier for the consumers to pay the higher prices because it will usually translate to only a minor increase on their end.
  • Relative Cost of Tuition – While textbooks cost a lot, they are a relatively low portion of your total college budget. When you take into consideration what students spend on tuition, rent, food and other necessities, $400 doesn’t seem like that big of a deal. A student isn’t going to change their major or drop out because the price of a textbook is too high.
  • High Per-Capita Incomes – Textbook prices are higher in developed countries like the United States because publishers know that students are more likely to afford them. This is actually why buying an international copy of your textbook can be cheaper than purchasing a normal copy. Publishers know that students in developing nations have less money to spend on education and lower the price accordingly.

It’s Difficult To Make A Profit

Publishing companies don’t just charge high prices because they want to exploit college students. It’s actually rather difficult to make money through the sales of textbooks. As explained above, it’s expensive to bring a textbook to market and publishers face many challenges when attempting to generate revenue.

  • Small Market – The niche market doesn’t just harm the consumer; it also harms the supplier who has fewer potential customers. If the textbook you published covers material that’s only taken to 10,000 students in the country, you will raise the price in order to generate a profit from the limited number of sales.
  • Lost Sales Due to Reselling – As recommended in past article, one of the best way to save money on textbooks is to just buy a copy from someone who has already taken the class. This “recycling” of textbooks is great for students who usually get the textbook for a lower price. However, it also means the publisher lost a sale. This actually the reason publishers will frequently release newer editions of their textbooks. They are attempting to prevent resales by making older editions obsolete.
  • Small Profit Windows – The window in which textbook publishers can turn a profit is getting smaller. Originally, a textbook would sell for around 5 years, however, now the average is just 3 years. There are many opinions as to this is happening but many believe it’s due to a higher demand for more “recent” and “relevant” textbooks. If a publisher were to keep a book out for 5 years they could risk losing market share to a different publisher who is willing to publish a “newer” version in 3 years. This cycle is harmful to both the publisher who now needs to spend more money to update their books and the students who are now forced to purchase a newer edition of the textbook.