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College textbooks are a racket

- October 21, 2015

The Orange County Register reports that Alain Bourget, a math professor at Cal State Fullerton, is in danger of serious disciplinary action from his employer. His crime? Refusing to teach the assigned textbook, which costs $180 and was co-written by the chair and vice-chair of his academic department. According to the Register, the mathematics department decided way back in 1984 to “approve” the text and hasn’t revisited its decision since. Bourget wanted to use two other textbooks instead — one of which costs $76, and the other of which was free. Maybe there are other underlying complications that the Register hasn’t reported — but the story reinforces a strong basic message. College textbooks are a racket.

Here’s how the racket works

I teach international relations at a university where political science is the most popular major. As well as teaching intensive seminars, I sometimes teach big entry level courses with 300 students. Every year I do this, I get free textbooks during the summer from academic publishers who want me to assign them. I get phone calls and e-mails from publishers’ reps, asking if they can come around and talk to me about all the great books that they have on offer. Occasionally, publishers contact me to see if I’ve any interest in writing a textbook myself. I politely decline all these gracious offers on ethical grounds. I simply don’t think it’s right or fair to force college students to pay hundreds of dollars, in addition to their tuition, for books that replicate knowledge which is freely available elsewhere.

College textbook publishers charge vast and extortionate amounts for their textbooks for one simple reason. They do it because they can. Students usually have to take a few required big courses for their major, and they have to buy the required textbooks for these courses. This means that the market is price insensitive (which is economic jargon for saying that demand doesn’t go down as much as it should when prices go up). Professors often don’t care as much as they should about the costs of the textbooks — after all, they don’t have to pay those costs themselves. Students do usually care, but they don’t have any choice in the matter — they have to buy the textbooks they are required to buy. Businesses can make big, big profits from selling to price-insensitive markets, since they can jack up prices without weakening demand for their product. It’s a sweet deal for academic publishers, but not so great for students.

Typically it’s textbooks for required courses that are most expensive, while textbooks for “elective” (optional) courses are more reasonably priced. However, this isn’t always true. For a couple of decades, every graduate student of international relations effectively had to read Kenneth Waltz’s short but highly influential book, “Theory of International Politics,” and the publisher charged hundreds of dollars for it. When the influence of the book began to fade, the price fell dramatically.

Publishers use sneaky strategies to keep prices high

Once a publisher has convinced a professor to teach from an expensive textbook, they have built a captive market. Conscientious professors will change their courses from year to year — but not always by very much. If they structure their course around a given textbook, they have made a sunk investment of time and energy, and will be reluctant to make the enormous effort required to redesign their course around a different textbook. This means that publishers have a strong incentive to get professors to adopt their books — once they’ve done this, it will be the gift that keeps on giving. As Tom Bartlett reported for the Chronicle of Higher Education, one small textbook publisher paid thousands of dollars to junior professors to bribe them to adopt their textbooks. Other incentives are more subtle, but Bartlett quotes a sales representative from a larger publisher as saying “To be blunt, you have to find a way to buy off the professor.”

Publishers also employ a variety of tactics to make it tough for students to pay lower prices. Why, for example, do new editions of textbooks come out so often? It isn’t (usually) because there’s a ton of new knowledge and information that needs to be integrated into the text. It’s to try to limit the second hand market in textbooks, which allows students to buy old books from other students who don’t need them any more. Textbook publishers have also done everything they can to stop students from buying “international editions” — cheaper versions of the textbooks published for other countries where students aren’t able to afford to pay American prices.

This creates weird and distorted parasitic secondary markets. For example, professors like me are used to regular visits from “book buyers” — people who visit our offices to try to buy all those free textbooks that we’ve been sent by publishers, so that they can be sold on to desperate students.

Economists don’t pay much attention to textbook monopolies. Sometimes, there might be a reason for that

The textbook market for required undergraduate courses bear a marked resemblance to monopoly. Sure, there’s competition between different publishers struggling to get their textbooks adopted, but once the textbooks are adopted, they can mostly relax and enjoy the income flow. We see many of the classic features of monopoly — price discrimination (between the U.S. and other markets), apparent ‘economic rents’ (in which textbook producers are able to enjoy super-profits) and so on. Remarkably, though, there appears to be very little interest from academic economists in this example of a distorted and non-competitive market, even though these economists (who presumably usually teach from textbooks, too), engage with that market every semester.

It may be that economists are blind to the problems of this market because they are themselves involved in it. Take, for example, Gregory Mankiw, who is the Robert M. Beren Professor of Economics and former head of the Council of Economic Advisers. He has also regularly taught Harvard’s required introduction to economics course, where he has required students to buy his own textbook (which now costs a smidgeon under $300), while refusing to consider donating his profits from this captive market to charity. I suggested seven years ago, that Prof. Mankiw, who is skeptical of regulators and strongly committed to free markets, consider taking his actions to their logical economic conclusion.

If I were him, … I’d claim that I was teaching my students a valuable practical lesson in economics, by illustrating how regulatory power (the power to assign mandatory textbooks for a required credit class, and to smother secondary markets by frequently printing and requiring new editions) can lead to rent-seeking and the creation of effective monopolies. Indeed, I would use graphs and basic math in both book and classroom to illustrate this, so that students would be left in no doubt whatsoever about what was happening [to them]. This would really bring the arguments of public choice [economics] home to them in a forceful and direct way, teaching them a lesson that they would remember for a very long time.

Inexplicably, Prof. Mankiw has yet to take up this suggestion. Doubtless, he thinks that his textbook is the very best introductory textbook on the market. However, it is equally likely that the chair and vice-chair of Prof. Bourget’s department have the same opinion of their required textbook. This doesn’t change the underlying economics of the situation, or of the textbooks racket.