Rising Textbook Costs: Can New Technology Help

Rising Textbook Costs: Can New Technology Help?

by

Bryce J. Jones*

Katherine L. Jackson**

1. Introduction

The cost of college textbooks, the frequency of new editions, and the bundling of texts with other materials have increasingly been the subject of recent controversy. Even Congress has stepped into the fray with legislation that requires colleges and universities to post textbook information online. After teaching business law and legal environment courses, many faculty are disenchanted with the selection of available textbooks. Some textbooks are too easy for average or good students while some are comprehensive enough for law students. In addition, the vast majority of textbooks come with a multitude of supplements that were often underutilized. Perhaps this is because study guides and test bank questions (and answers) are frequently overly detailed and poorly written.

The retail priceof a typical new business law textbook runs from $100 to $200. This is especially burdensome for students because many of the $200 books contain enough material for two classes while the typical curriculum only requiresthat the studenttake one course. In recent years, publishers have attempted to address this problem via less expensive custom-made books (which may, for example, extract those chapters not relevant to the particular course). These custom made books are typically in the $100 range.

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The New York Times recently estimated that the yearly cost to students for textbooks is $700-900[*]

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though that seems low given students will typically have to buy some new editions at $200 a book (unless of course they can rent—in which case, the book would probably rent for $100).Rental programs have become more popular across many colleges and universities, but questions arise as to how expensive they are to set up and whether students still are paying large amounts of money even to rent.

New e-readers have the potential to lower these costs. Beyond the cost of the e-reader, there are substantial cost savings to the publisher and the retailer; these savings can be passed on to the student. Electronic readers have caught on with many publishers, book retailers, and readers with the use of models such as the Nook, the Kindle, and the iPad (as well as e-readers from Sony and Borders). Amazon (with their Kindle earlier) tried to lower the price of most new regular books (that is, novels and non-fiction books--not necessarily textbooks) to $9.95. Some publishers balked andwere able to force prices higher (to $15 and sometimes $20).

The paper will examine each of these solutions and their impact on the students’ pocketbook for textbooks. Can the new e-reader technology help with these cost problems? Are there other problems withthe textbook situation?

II. A Broken Model for Picking Texts

The current model for choosing textbooks is problematic. Imagine an economy where other people chose what goods and services you could buy. This would mean that users (buyers) would neitherreceive the benefits of northe efficiencies inherent in a capitalist supply-and-demand structure. Even more than that, users may find features they do not want or elementsthat are absent. This argument is somewhat flawedwhen applied to textbooks because presumably students are not equipped with the knowledge to make the selection. However, aproblem still exists because the faculty memberwho makes the selection receives a complimentary copy, and it is not uncommon for faculty to have little knowledge of the price of the textbooks they select. Publishers, who are aware of this fact, may have little incentive to keep costs reasonable.

In general,publishers revise college textbooks about every three years. After the first year of publication, the secondary market of used textbooks flood sales outlets with enough used copies to impact the sale of new editions. Because publishers make no money on the sale of used textbooks, they willprint a new edition and discontinue sales of the previous edition.Bookstores, of course, will not buy back texts that have been discontinued. Students are typically told by faculty to buy the latest edition, and even if they occasionally tell the students that they can buy the olderedition, students may have difficulty finding itbecause bookstores do not typically have older editions.[†] While currency of material may arguably be a motivator for the publisher to print an updated version, the typical update has only marginal value to the student.

Upon publication of the 13th edition of Shakespeare, one parent took issue with whether the playwright was still revising his works.This is whatprompts students and parents to bemoan the price of textbooks although their complaints typically go unheeded.

One option to outright purchase is to rent textbooks. While this may lessen the cost, rental agreements often have restrictions on how the students may use the book. It certainly reduces the likelihood that a student will keep, or even be allowed to keep, the book for future reference. It is costly for universities to set up rental textbook systems though more are under pressure to do so. But because of increasing pressure, it is being reported that 1500 campus bookstores are now offering some type of rental plan (though perhaps not for all texts).[‡]

A second and growing alternative to purchasing is to make textbooks into e-books. While this obviously cuts the cost, problems still linger. There are a multitude of legal issues in terms of copyright ownership, as well as publishers’ fears of a Napster-like sharing of content that would diminish their profit margins. The cost of individual devices (such as an iPad) for each student may be prohibitive and yet if the e-book is on a regular desktop or laptop computer, it requires the student to read a large amount from their monitor which could tie up computer labs across campus, confine the student to one location, or require the students to read from their own computer. At our university, when we were looking at reducing the costs of texts, some students were vehemently opposed at having to read from a computer. A large editorial appeared in the student newspaper calling this option a misguided alternative. According to an article in the Chronicle for Higher Education, “for an e-book reader to take off in the textbook market, a standard will need to emerge, so that digital formats do not feel like extra homework for professors and students.”[§]

E-book readers (such as the Kindle, Nook, or iPad) may now be popular, but for now these devices do not appear to be a completely viable solution to cutting costs and serving as a complete substitute for textbooks. Still the e-book readers are the wave of the future. For example, at Stanford Medical School, all of the entering students receive an iPad with all of their textbookson it. The total cost is only slightly more than a print version.[**] Equipping students with e-readers (such as the iPad) at larger universities such as Cornell, Princeton, and George Washington has caused some problems with network stability, connectivity, and bandwidth. Other colleges have not had such problems. Still adding the cost of an iPad to the cost of texts has increased costs to students.[††]

While ebook readers may well become the norm for the future, at present they possess some characteristics that may discourage immediate usage. While the Amazon’s Kindle, and the Barnes and Noble’s Nook are small and easy to handle (which is important for reading), they lack color and their ability to highlight is somewhat difficult. The iPad has the advantage of having a bigger screen and color (besides having other abilities), but its size and weight poses a problem in holding for a considerable length of time. Some students have reported that because of the iPad’s ability to use the Internet, students are finding themselves easily distracted; they find themselves off to their email or Facebook page. Another problem for ebook texts is the ability to easily flip between non-consecutive pages (which is often necessary for some books with homework problems where a student may want to immediately referencesome earlier pages).[‡‡]

The following is a comparison of some current ebook readers (in their least expensive form).

NameSizeWeightScreen SizeColorCost

Amazon Kindle III7.5”x4.8”x0.335”.5 oz.6”No$139[§§]

Amazon Kindle DX10.4”x7.2”x0.38”18.9 oz.9.7”No$379[***]

Apple iPad9.56”x7.47”x0.5”21 oz.9.7”Yes$499[†††]

B&N Nook7.7”x4.9”x0.5”11.6 oz.6”No$149[‡‡‡]

B&N Nook Color 8.1”x5x0.48”15.8 oz.7”Yes$240[§§§]

Of course many other features may be important such as the amount of memory, the number of books available, and the types of e-book formats that can be used natively or with “apps.”

In the authors’ opinion, color and screen size are points in favor of the iPad. On the other hand, the Kindle (not the DX) has an advantage in terms of total size and weight. Perhaps the Kindle has an advantage in terms of the number of books available (though this might not include a textbook advanatage.) More information in regard to making textbooks appropriately formatted for these e-book readers will be given later.

1. Cost of Textbooks

According to the New York Times in October 2010, the price of textbooks has risen four times the cost of living.[****] The following studies have shown this to be a significant problem.

A. GAO Report

A 2005 General Accounting Office report found that textbook prices had increased 186% between 1986 and 2004 while general inflation had risen only 72%. To be sure, this was not the only rising cost to students as tuition and fees went up 240% during that same time period.[††††] The report cited several factors for the rise in textbook costs. First, the GAO said that there was increasing demand for products that accompanied the textbooks such as cd-roms, web-based tutorials, and self–assessment tools (though it might be asked whether the demand was from students, faculty, or from textbook publishers—relative to the authors). Second, the report indicated that the revision cycle for textbooks had gone from 3-4 years–down from 4-5 years twenty years ago.[‡‡‡‡] A question arises whether the depth of revisions requires the publication of an entirely new edition. For instance, law book publishers frequently update with pocket parts that are much less expensive than buying a completely new book.

The GAO report also indicated that identical textbooks are sold in other countries at lower prices. According to publishers, the cost of printing and selling book overseas is less expensive and that they base price on local market conditions and competition.[§§§§] To compound the matter, publishers have strong contractual relations with their overseas partners to prevent them from bringing the lower-cost texts back into the U.S.[*****] This scenario is not dissimilar to prescription drug manufacturers who try to make it difficult for U.S. citizens to purchase bargain-priced drugs from Canada or other countries. Third, the GAO cited the consolidation of textbook publishers in the U.S. as another factor for the rising costs. In 2004, five publishers controlled 80% of the textbook market.[†††††]

GAO also disclosed that students often were unable to purchase used textbooks. The sale of used books comprises 25%-30% of the market. Oftentimes faculty send their textbook selections to the bookstore late or decide to switch to a newer edition at the last minute both of which compounds the problem.[‡‡‡‡‡] Students can sometimes resell the book to the bookstore, but only if it is in good condition, the bookstore knows that the faculty member will use the same textbook the following semester, and there is no new edition.[§§§§§]

The GAO revealed that retail bookstores would typically sell new texts at a 25% margin and used books at a 33% margin.[******] Retailers reported that bundling of supplements with texts had become more prevalent and that it was difficult to get texts without supplements.[††††††] Concerns about the reduced revision cycle were expressed, though the publishers claim that demand for revisions came from the instructors. Still an example was reported of mathematics and physic professors who petitioned a publisher not to revise texts. Once a publisher prints a new edition and disseminates it to the marketplace, the price of the older edition falls to close to zero.[‡‡‡‡‡‡] With such a low price, perhaps this might make the book more attractive to buyers, but if faculty do not “allow” older editions, the older versions will die.A few publishers may allow some of their books to be sold with the faculty member picking the particular chapters that they want to be included. and this can reduce the price. For example, many business law textbooks have enough material to covertwo classes; a custom-made text may be able to cut the sizeof the text substantially. While custom publishing reduces students’ initial investment it severely limits their ability to resell their books.[§§§§§§]

b. Other Economic Studies

One economic study was done by Carbaugh and Ghosh in 2005.[*******] The authors found that significant merger activity had changed the textbook publishing market into an oligopoly.[†††††††] The authors estimated that the sale of a $100 textbook generates about $7.10 in profits for the publisher, $11.60 in royalties to the authors and $4.50 in revenue for the bookstore retailer.[‡‡‡‡‡‡‡]

In alignment with the GAO report findings, the authors also documented that publishers were selling books in foreign markets at substantially lower prices. For example, in the United Kingdom, the authors reveal that prices were half or less and in countries such as Taiwan, Malaysia, and Singapore the prices were even lower.[§§§§§§§] As noted earlier, U.S. publishers have tried to stop the reimportation of such books.[********]

As to whether the mergers in the textbook industry have resulted in a net gain or loss in welfare is difficult to ascertain. Mergers have a positive effect when they realize efficiencies of cost reductions and the ability to enter new markets. On the other hand, welfare may be harmed by the ability of a few firms to raise prices.[††††††††] Since the mid-1990s, prices of texts to bookstores have risen 50% while overall producer prices have risen only 10% in the U.S.[‡‡‡‡‡‡‡‡] Publishers claim that the increase in prices have resulted from instructor demand for additional supplements and services.[§§§§§§§§] (But this is far from clear: Some faculty may like and use the supplements but some may not. And whether the supplements are used by the students is not clear. These certainly add to the cost substantially.) While the authors are reluctant to draw any firm conclusion, they do say that it is clear the publishing industry has gained a reputation of moving to an oligopoly accompanied by higher prices and weak antitrust oversight.[*********]

Another more detailed report on textbook prices came out in September 2006 from the Education Department done by James V. Koch, Professor of Economics at Old Dominion University.[†††††††††] The chief question examined was why textbooks prices were rising so quickly. The author immediately emphasized the point made earlier that those who select the textbook are not the buyers: “students end up being coerced to pay for someone else’s choices.”[‡‡‡‡‡‡‡‡‡] He determined that 90% of the faculty make individual choices on textbooks. In a Connecticut study, it was found that only 58% of the faculty were aware of the costs of textbooks and that only 43% make their textbook selection based on costs.[§§§§§§§§§] Tremendous price differentials existed between the U.S. and foreign markets. For example, he found a standard economics text by Krugman and Wells cost $126 in the U.S. and only $76 in Great Britain. In addition, he discovered that publishers had contractually attempted to stop the reimportation of texts although a few resourceful students were able circumvent the ban.[**********]

Koch ascertained that the demand for texts was inelastic (i.e., not very sensitive to price increases). With an inelasticity of -0.2, a ten percent price increase would mean a decline in purchases of texts of only two percent.[††††††††††] Thus, inelastic demand makes it easier for purchasers to increase prices. On the supply side, Koch also found the textbook market to be an oligopoly where only five publishers controlled 80% of the market. Such markets “are characterized by elevated prices relative to costs.” Textbook wholesalers/distributors are also an oligopoly, with only four dominating the market.[‡‡‡‡‡‡‡‡‡‡]

Because new editions in effect destroy the market for earlier editions, Koch determined that publishers have the incentive to have a short cycle for revisions: the highest sales are in the first year of the new edition. This is in contrast to the car industry where a new car model does not eliminate the demand for used cars.[§§§§§§§§§§]

Colleges and universities have a stake in the high price of textbooks because more than half of them own their bookstores and most of the rest get a percentage of sales when the college or university contracts with a private entity to run the bookstore (e.g., Barnes and Noble). Koch does admit that it is not completely fair to compare the prices today to those of 20 years ago because of the change in the product. In the past the only product was the textbook and today the product is a combination of the text along with their various supplements such as cd-roms.[***********] Koch said it was unknown whether the ancillary materials were actually enhancing learning. He did say that students are actively using the Internet to reduce their costs and that bookstores have noticed this in their sales.[†††††††††††] Perhaps the rise in the price of textbooks as part of the total cost of a college education has been a factor in colleges and universities employing more part-time instructors whose salaries are well below that of full-time faculty members. In 2003, 43% of instructors were part time compared to 33% in 1987 (according to the U.S. Department of Education).[‡‡‡‡‡‡‡‡‡‡‡] While this causality would be difficult to affirm, textbook prices have increased the cost of obtaining a college education.