Why do textbooks cost so much? It’s not labor

The College Board estimates that American undergraduates spend about $1,200 annually on textbooks–that’s more than tuition for one full-time quarter at my community college. The Government Accountability Office found that  between 1986 and 2004, textbook prices nearly tripled: textbook prices rose by 186%, following closely behind a 240% increase in college tuition while far surpassing an inflation of 72%. Here’s the GAO’s graph:

gao graph

The NYT’s Economix blog reports that the increase in overall tuition is caused primarily by state responses to recessions: in a budget crisis, elected officials can cut funding to higher education more easily than, say, social services. These cuts are pushed through during crisis and never get repealed. From Economix:

Figures are per full-time equivalent students, in constant 2010 dollars adjusted by SHEEO Higher Education Cost Adjustment (HECA).

But while there’s a direct connection between state budgets and college tuition costs, no such connection exists between state budgets and third-party produced textbooks. So why do textbooks cost so much?

Textbook publishers say that that’s the price for good content. US News & World Report, um, reports that less than a quarter of a textbook’s sticker price goes to distribution (i.e. store overhead and shipping). The rest goes to the publisher:

…around 15.4 cents of every dollar went toward marketing the textbooks, 11.7 cents went to the authors, and the largest chunk—32.2 cents—went to the basics: paper, printing, and paying publishers’ employees.

Publishers say that this is the cost of quality: textbook prices reflect the years of labor that go into producing accurate, relevant textbooks.

However, student advocates point out that this rationale only makes sense for upper-level textbooks, which brief students on the cutting edge of their discipline. Core subjects like intro algebra or composition, on the other hand, haven’t substantially changed their content for decades or more, so there’s no need to put out a brand-new, high-priced, labor-intensive version every few years.

Moreover, the labor-cost rationale for textbook prices cannot account for the difference between prices of newer/older editions of a textbooks. While writing this (mid-August 2013) I searched Amazon.com prices for different editions of a randomly selected textbook. I found that David G. Myers’ Psychology has the following prices:

Edition  New Used Rent
7th ed. $25 $4.12 n/a
8th ed. $70 $32.78 $21.99
9th ed. $59.95 $20.80 $26.95
10th ed. $113 $111.30 $44.06

A new copy of the 10th ed. (published in 2011) costs four and a half times as much as a new copy of the 7th (published in 2004). A used copy of the 10th ed. costs twenty-seven times as much as a used copy of the 7th. It’s implausible to suggest that these price differences reflect either differences in quality or in labor between different editions. We can see, therefore, that the prices of different editions of the same textbook are not determined by labor costs.* This gives us reason to suspect that textbook prices in general are not determined by labor costs.

A better explanation is chooser/payer disconnect (or what I’ve seen at least one econ grad student call a “principle/agent problem”). In a normal book market, the person who chooses which book to buy and the person who actually pays for and uses that book are one and the same. In the textbook market, by contrast, professors choose textbooks while students pay for them. This is analogous to a doctor prescribing, and a patient paying for, name-brand medications rather than perfectly suitable generic alternatives. In both cases, the person choosing between products lacks any incentive toward cost-effectiveness. For the professor, cost is literally no object.**

So why are textbook prices so high? It’s not because of labor costs,*** and it is (largely) because of chooser/payer disconnect. Students pay high prices because they have to, publishers charge high prices because they can, and professors go along with it because they have no incentive not to.

*Although they are constrained by labor costs, i.e. a publisher generally can’t sell a book for $1 that costs $2 of labor to produce. In other words, labor costs create a lower limit for prices but not an upper limit.

**That’s not to say that professors don’t care about their students’ financial health out of sheer benevolence, only that there’s no structural incentive pushing them to do so.

***Caveat: in the long-run, I’d expect labor costs to catch up with textbook prices as more and more textbook-producers were attracted to the high-profit market. However, in this case, high labor-costs are caused by high prices, not the other way around.

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