Maybe profs should haggle over textbook prices?

Mark Perry shows that textbook prices have been increasing, a lot.

I don't know why that is. But maybe there's something that profs could do about it.

The publisher's rep drops by your office. She asks which book you will be adopting for your course. She really wants the sale. You say:

"I like your book, but if the students don't buy it and don't read it, it won't do them any good. And whether they buy it depends on the price. If you can ensure the University bookstore sells it at a price of $[X], I will adopt your book. If not, I'm going to see what another publisher can do, before I decide." [Try to pick something sensible for X, or just let X = "reasonable", and see what she comes back with.]

Just trying to make the demand curve a little more elastic. Since each textbook has large fixed costs, and there's relatively free entry, in equilibrium we would end up with a smaller variety of textbooks, but at a lower price. I think that would probably be better than the equilibrium where the principals (students) who choose the quantity of textbooks care about price, while the agents (profs) who choose which textbook don't care about price.

Has anyone modelled this monopolistic competition cum principal-agent problem?

Comments

[Kevin]

I am a current graduate student, and my question is why there hasn't been a move towards some of the open access principles texts within economics. There seem to be some reasonable choices out there, but little actual implementation. When I was looking to adjunct this summer I thought about the use of these open source texts, as the cost of burdening students with a $290+ Mankiw text seemed excessive.

A few things I've noted when thinking about the topic: When I attended a local area college as an undergraduate, we were forced to read a textbook co-authored by one of the professors in the department. At my current university, class sizes are large enough that some of the instruction on how to use online materials done by publishing company helped the workloads of both the professors and teaching assistants.

This seems to lead to possible principle-agent problems within schools. Econ 101-esque classes are among the largest first year classes across most US schools due general education requirements. This creates a large incentive for departments to either publish and require their own internal text and price "at the market rate" at LAC's like the one I attended, or for publishing companies to try and help support implementation of introductory texts. This deters faculty away from cheaper options, and the rising prices seem to be a self fulfilling prophecy. I'm not sure if professors asking for a lower rate on books will make demand more elastic, especially since there are free options professors aren't adopting anyway.

[Scott Sumner]

I think you are probably right, although I may end up doing a textbook, in which case this plan would hurt me.

This is also like the US healthcare industry, which doesn't make me very optimistic.

[Jacques René Giguère]

The point isn't free or expensive. It's the change (here we have real menu costs...)From the prof pov there is a large fixed cost in using a book (familiarity with the book's subject presentation, test bank etc). Do you really want to tell your department head and tell her "My article is late because I am trying a new textbook for those !"/ undergrads and my test bank is not ready yet"?

[David]

I've taught in France and Korea and the books are far cheaper. If the prices were like North America the students and many profs would strike.

[Chris J]

Nick, sorry no. Better yet, time to end this game, at least for first and second year courses. The Ontario government should ask universities to give administrative relief to some great teaching profs. The profs can volunteer to make their administrative work the writing of a good first or second year text. The profs work is released on a sort of creative commons license. Because it is on creative commons, once released other profs could pick up the work and improve it. I generally prefer a market-based system with regulation but I bet this would work. All the computer code and systems I use for data analysis were written this way.

[Nick Rowe]

Chris: from my experience, textbooks written by a committee aren't as good as textbooks with one (main) author (it's OK to have sub-authors doing the Canadianisation etc.). There needs to be one overall coherent vision, especially to decide what gets left out. I would rather flip a coin to choose between Mankiw or Krugman than adopt a book jointly written by both.

[Nick Rowe]

Kevin: There is indeed a potential conflict of interest in adopting your own book. Back when I was a Canadian co-author on Mankiw's book, I would make a rough estimate of my royalties from sales in my own course, and donate it to a student bursary. But then I was getting good royalties (relative to the work I put in) from sales at other universities. If I had done a lot of work to write a textbook specifically for my own course, because I genuinely didn't like the alternatives, and if I got no other royalties from other universities, I wouldn't have been as happy to do that, because it would have meant I would have been doing a lot of extra work for no pay. It's a tricky one.

[Ernie]

"it would have meant I would have been doing a lot of extra work for no pay. It's a tricky one"

Seems simple. The people of Canada pay well north of 100k$ a year in salary to econ professors. For that money (+ benefits, sabbaticals, etc etc) you would think a textbook describing the routine knowledge that a first-year student needs could be produced. It's only "extra work" if you have misaligned your notion of "work" with what people expect from you.

Now if you want to argue the incentives are misaligned because ultimately your Dean doesn't care about the textbook, that seems like where the discussion should go.

[Frank Restly]

Nick,

I wonder if the increased proliferation of digital scanning equipment has anything to do with text book prices? I presume that the prices you are referring to are for hard bound versions of textbooks. Do you see the same thing in digital versions?

Also, what copy protections are built into digital textbooks (if any)?

[Nick Rowe]

Ernie: deans have budget constraints too.

Frank: I don't know. In principle, if each textbook was copied (say) once, the equilibrium price would (roughly) double.

[John]

Nick, if you are donating the money "to the students" to offset your own royalties, why not just return the money directly to textbook company and cut out the middlemen? Given the inelasticity and the market capture it's basically the same thing. If anything you are saving the students the psychic harm of in theory having money that will quickly be appropriated back from them.

[baconbacon]

The problem as always is incentives. Professor's gain almost nothing in selecting a cheaper text, but gain something from selecting the best text (easier to teach, clearer writing means fewer questions). Professors could save their students hundreds every year by allowing them to use older editions and putting in the effort to highlight the relevant passages in each text and then producing their own problem sets for homework. Almost no one does this (I have never actually taken a class or talked to anyone that took or taught a class that did this outside of tiny (<10 people) poetry classes) because the people ordering the books aren't the people paying for the books.

In literature classes it is absurd to even suggest buying the one of the Norton Anthology series- almost every single piece used is available online for free, and professors still tell their students to pay 50-100$ for a huge and awkward book that they are frequently required to carry to classes. A small amount of effort (even 15 years ago when I was taking classes) to select the most readily available pieces for study would have saved students in their classes $5,000-10,000 a year in larger universities, and several thousand for smaller ones.

[Nick Rowe]

John: interesting! In a simple model (monopoly, constant elasticity of demand, constant marginal cost including fixed royalty $R per copy sold) your proposal would actually be a Pareto Improvement over my original (students and publisher better off, and prof indifferent). Because the price will be a markup m over MC, so price will drop by (1+m)R, and more copies will be sold, so profits rise and consumer surplus rises by more than the loss of lump sum transfer.

I think that's right.

[John Fitzgerrel]

In the long haul open source (Creative Commons etc.) online material is probably the best solution to the (for my grandchildren at least) backbreaking cost of textbooks. In the short term a lot of relief could come by just keeping the same book so that used books make sense. Why do we need new calculus or sophomore physics texts?

[baconbacon]

Thinking about it I think one of the most obvious problems is that students sign up for classes a few days before they need the textbooks, which prevents large scale production of accurate numbers if they are the primary buyers. I'm not sure what would help to remedy this situation.

[MathProf]

In my experience the publisher will issue a new ISBN number for a so-called "custom edition" (i.e., the price
is customized), if the enrollment is large enough. Any department which teaches large numbers of students should
take price into account, and negotiate as needed, when selecting a textbook.

[Frank Restly]

Baconbacon,

"...I'm not sure what would help to remedy this situation..."

Digital textbooks with flexible licensing arrangements I think would do the trick. Instead of each student buying a set of hardback textbooks, each student is give an iPad, Nook, or some other digital reader upon enrollment. He / she is then issued permission to access various textbooks in digital format as classes are assigned. University simply buys a multi-year / multi-student digital license to make the textbook available.

This should over time be a cost savings for both the publisher and the University when popular textbooks undergo multiple editions (3rd, 4th, ... 10th edition).

[baconbacon]

@ Frank Restly-

Don't we still have an incentive problem? The universities aren't losing out on the current deal (in fact the bookstore on campus usually has a hefty markup).

[Frank Restly]

Baconbacon,

If you want to look at from a profit / loss statement, then are excessive textbook costs dissuading students from attending? If so, then universities are losing out on the current deal. If not, then universities are not losing out.

If you want to look at it from an equal access to higher education point of view, then the public (as a whole) is losing out because some students may not be able to afford the cost of a higher education (textbooks, room and board, and tuition).

I think this distinction becomes more pronounced when comparing public / private universities. Public schools would be more inclined with going toward digital textbooks as an economic efficiency - educate more students for the same / less cost. Private universities may choose otherwise.

[Bob Smith]

"'ve taught in France and Korea and the books are far cheaper. If the prices were like North America the students and many profs would strike."

In fairness, in France the students and profs will strike because it's tuesday, so that maybe isn't saying much.

[John]

Ultimately all textbooks will be open source and digital, just like ultimately all university education will be massively online. My suggestion to profs is to decide whether they want to be included in the future or forgotten by it.

[John]

Maybe you derive utility from playing Robin Hood on yourself and giving back to your students. I guess that makes me a grinch for destroying the spirit of giving.

Quick! Behavior economics! Market frictions! Mea Maxima Culpa!

[Chris J]

Nick,
I agree about the committee bit. But yhat doesn't change my point: there is a wealth of talent whose best research days may be behind them. Administrative relief for a Creative Commons textbook is a great deal.

[Frances Woolley]

Nick, but why do we teach to one particular text at all? As others have noted, in European countries, texts as much cheaper. When I was studying in England, I was stunned to discover that profs didn't assign one textbook, they would give students a choice of two or three textbooks, so the students could read, e.g. Varian chapter 2 or Eaton chapter 3 - the reading list would have several options. Texts weren't sold exclusively through university bookstores, but in other bookstores as well. This solves the principal agent problem by marketing directly to the student.

Of course this approach deprives universities of campus bookstore revenues and makes students think - e.g. if they buy a text that uses x1 x2 notation and you use x y notation in class then they have to work stuff out.

And profs can't rely on, e.g., every student having access to question 2 at the end of chapter 3, and give that question as an assignment question.

[Frances Woolley]

Another solution is to have universities negotiate all in deals with publishing companies for a suite of textbooks, so that every student would have electronic access to every text on the list, and then include this cost in tuition/advertise it. I think this has happened in the US in places. Or for governments to pay for the development of textbooks, which they can they provide for free to all students in lieu of other forms of tuition subsidies.

[Nick Rowe]

Frances: "Another solution is to have universities negotiate all in deals with publishing companies for a suite of textbooks, so that every student would have electronic access to every text on the list, and then include this cost in tuition/advertise it."

Hmmm. Sort of like what we do now, with University site licenses for computer software.

[Chris J]

http://www.dol.gov/opa/media/press/eta/ETA20121885.htm

The US dept of Labor is insisting its funding for training materials be used to create Creative Commons learning materials.

[Toby]

Why not take last years textbook price, as priced on say Amazon or the university book store then, as a reference price and give those who adopt texts for their classes a percentage of the total difference between last years price and this years price multiplied by the number of students who actually bought the book? This percentage is then to be paid by the students. Either directly as say a course registration fee or indirectly through their tuition. In the case that it is negative it is deducted from salary.

Ideally you'd have students and professors bargain before the class, but students don't necessarily know what's good for them and in any case the (other) transaction costs seem prohibitive. This seems like one way to mimic such a bargain and put a downward pressure on price.

[Paul Fisher]

I'm a current undergrad at a medium sized American university and there are a few additional responses by students to high textbook prices.

First, textbook piracy is widespread, on facebook pages for the university either official and unofficial, pdf version of common textbooks are being passed around for free by students. Also, many are easily found by googling the textbook name and edition.

Second, also on facebook as well as amazon, there is a large second hand market for textbooks, with most selling for less than half of the list price.

Third, at least in my economics department allowing the use of the prior edition of textbooks is quite common, I believe this was the policy in Intermediate Macro. Theory, Intro to IO, Trade Theory, Econometrics I and the Intermediate Mico. THis may have to do with the fact that the department is has quite a few young professers who experienced high textbook prices.

[Donald A. Coffin]

A comment on this: "...textbook prices have been increasing, a lot. I don't know why that is."

My perspective starts with 1966, when I took intro econ and used a textbook published by Irwin (since swallowed by the McGraw-Hill octopus), written by Jay Wiley (Purdue University). Hardcover, about 500 pages. Entirely black-and-white text, without any material (definitions, etc.) in the margins. Easily fewer diagrams in the entire text than I routinely used in the demand-and-supply portion of my intro class. No study guide, no test bank, no online course materials (no online anything).

First book I taught from (grad school, 1970): McConnell. Maybe 30% longer than Wiley. More diagrams, wider margins used for some stuff. Study guides and test banks. A lot more material for the instructor in general.

Obviously this has continued. Books have become longer and longer (Mankiw 6th is well over 80 pages). More and more online material (that has to be developed, updated, maintained). More and more "free" stuff for instructors (chapter outlined, power points...).

In short (that took long enough, didn't it?), producing a textbook is more expensive now than it has ever been. In addition, the proliferation of titles means a more fragmented market and presumably, for the "average" textbook, spreading the fixed costs across a smaller sales base (to say nothing of the used market getting much more efficient).

I'm skeptical about the move to "free" books (and course sites and ancillaries). precisely because of the costs of producing the material. I'm skeptical of the notion that professors (even if it's supported by their universities) will take the time (2+ years, I think, to do a first draft of a book) and make the effort for little (or no) return.

For some courses, I have found materials on Wikipedia that I can use (but I find I need to annotate them heavily). For other courses (e.g., when I was teaching US economic history), I would encourage students to buy used, even giving them links to sellers. For intro micro I would do the same. For intro (or intermediate) macro, not so much--the field is changing so fast, and the facts on the round are new every year...

I'm pessimistic about the existence of any grand solution to the problem. And it is a real problem. Some things I've seem suggest that in some courses 1/3 (or even less) of the students in a class buy the text. At the institution at which I used to teach, we had an e-text experiment (which continues). One thing I could do was track which pages in the book each students even had open on their readers at any time during the semester. The median for the class was zero pages viewed.

Sorry about the extended rant.

[Nick Rowe]

Donald: a good (and informative) rant!

" Books have become longer and longer (Mankiw 6th is well over 80 pages)."

Typo? Should be 800?

When Mankiw first came out, it was much shorter than the competition. I actually counted (OK, I estimated) the number of characters in the book. It was about 30% less than the others, IIRC. There's an invisible hand that makes books get longer over the editions; because prof A won't adopt it unless it says a little about his pet bee, and prof B says the same...

"The median for the class was zero pages viewed."

Ouch! And you can't blame the high price in that case!

[Donald A. Coffin]

Yeah, 800. And you're right about bloat over editions.

[Chris J]

Donald, it is almost certainly true that this website is hosted on an apache server; the code is GPLed.

Radiotherapy doses to tissue are estimated using code written by scientists and shared freely by GPL. These codes originally were used by academic researchers doing nuclear and particle physics.

I do (almost) all my work on linux. Lots of academics can and do work very hard to share and promote their knowledge. I receive a good salary and have a great job. I am happy and motivated to share my work. I do so and an publically funded. There is nothing wrong with asking profs who are so inclined to use their admin time to share their expertise.

Indeed the content of this site is an excellent example. The WCI crew spend considerable effort explaining the economics affecting our world. Nick, Frances et al ain't being paid for this blog. They do it because explaining their knowledge is part of of the academic deal.

[Donald A. Coffin]

Chris, I try not to be a professional pessimist, but writing (and maintaining) a textbook is different from writing blog posts (even those that take as much time and thought as those here). (In addition, blog posts can serve as a precursor to published research, so the incentives are somewhat different.) I remain skeptical that unpaid effort (even if implicitly supported by University administrations) is likely to work. Much more likely, in my opinion, if that "free" educational materials will be underwritten by people with an agenda (e.g., the Koch brothers in the US). To the detriment of teaching & learning.

[Best Beta Trading]

Baconbacon, I was in a college course that did not offer textbooks (one that I traded for humanity classics). It didn't matter as I wanted to program security systems and pattern recognition software, not websites. The course material was available online but I didn't have the internet. At school and the library, the wifi was laughably slow. At least the CBC showed soccer. Probably home internet would've been more expensive than the textbooks.
The teachers and his two favourite flaming students mentioned buying books was useless because stuff online is free, but copyrights on books are enforced.
I read a lot and it is hard on my eyes to stare at a screen...
e-paper will eventually improve but you'd still need to scan textbooks and copy the files for the students. I wasn't able to program a shopping cart. I think I was very close but my teacher never marked my first try and the school said I could have as many tries as I wanted or rejoin the class behind us with the two blondes...instead of programming, I learned everything about security systems except the programming. Maybe the teacher was hired just so I would fail/drop-out?!
The textbooks are standardized, but the teachers and institutions have unions that ensure is a crapshoot. The tournament got boring in the knock-out rounds.

[Best Beta Trading]

...even the barkeep near the cube knew I would dropout. I spent my last few classes downloading porn.

[Chris J]

Donald, the agenda part may be a real concern.

[Chris J]

Donald, Nick,

You may consider this the exception that proves the rule. I consider this a beacon for many:
http://www.physics.oregonstate.edu/~stetza/

[Antonio Cabraels]

Bob said: "Ultimately all textbooks will be open source and digital"
Actually, there is one pretty good introductory course already out there
http://www.core-econ.org/
(full disclosure, I am one of the authors) which I think can compete well with Mankiw.
And it is (and will be) free. We use it at University College London, and other places, like Science Po or Bristol.
Take a look, I think it is worth it, and I will be glad if this model spreads for other (or even the same) courses.

[PederJakobsen]

Hey, Chris J., I just signed up for http://www.core-econ.org It looks great. You may be interested to know that in 1997/1998 (I think) Carleton University built an online economics course, complete with interactive Javascript and Flash graphics where you could play with simple models by changing parameters in real time in your web browser. It was a collaboration between comp sci and economics departments. Groundbreaking work at that time, I would think, given that Flash was in its infancy. I was selected as the summer intern to help with the content, and it kickstarted a long career in hi-tech as a software developer. Thanks Carleton! :)

[PederJakobsen]

Sorry, the above was meant for you Antonio Cabraels. And just like the printed page, it appears that once you "post" on this blog, you cannot edit your words. Digital technology 0, printing press 0. Next round please.

On another note, I have been able to find a free and illegal PDF copy of almost every textbook for economics that have come across at the Carleton bookstore. So, the questions is, if an undergraduate economics student truly has good instincts for economics, would they ever actually buy a text book? ;)

[Henry Cunha]

I was in textbook publishing from 1972 to 1996, first as a rep and then mostly as an acquisitions editor. We had periodic price revision meetings. I don't remember many references to competitive pricing over the years. Shucks, looking at Perry's article, I guess I left the business too soon.

I'm not sure, though, about the "relatively free entry" aspect. There are only a few big boys left in the "textbook" business, and, as someone said, "you cannot outflank them" (http://www.wired.com/2012/01/why-education-publishing-is-big-business/).

I also found it interesting, from Perry's article, that medical care seemed to be the other consumer item to even come close to the price increases in educational publishing. Perhaps these are fair prices in this rapidly expanding knowledge/information creation/destruction age. Or perhaps there's no way to argue against doctors of one kind or another.