Textbook Economics

by Robert VerBruggen

Nathan — I’m not at all worried that the creation of textbooks will lose its profitability. But I do agree that this could save students a decent amount of money.

College textbooks are a classic example of a third-party-payer problem: The professor decides what textbook students need, and students have to buy it, meaning that when a publisher jacks up the price, it doesn’t risk losing customers. (Personally, I would support folding textbook costs into tuition so that schools have a reason to pressure their staff to choose lower-priced books. Prices don’t serve their function in the marketplace if the person who pays them can’t jump to a competitor.)

Rental will not change this: The professor will still decide, the student will still pay, and the publisher will still decide the price. What’s more, the publisher will get a cut of every student’s download, whereas now they don’t get money from used sales. It’s even possible that revenue could go up.

The savings will come from the fact that bandwidth is cheaper than paper distribution. Look at this graphic: About half of new-textbook revenue goes to cover printing costs and college-bookstore expenses. Presumably, download services will take a smaller cut than that, and students will get at least some of the savings.

This does, however, open up the intriguing possibility of textbook piracy. I am a big fan of intellectual property — but it would be something of a comeuppance for textbook manufacturers to see their business implode after years of profiting from a market failure.

UPDATE: I just wanted to append a quick note in response to the comments. I think it’s important to understand what the word “copyright” means: It’s the right to copy something. Once you’ve made a copy and sold it, that copy belongs to the buyer, and you have no right whatsoever to profit from future sales of it. Textbook publishers (just like video-game publishers) are simply wrong to complain that they’re “losing money” to used sales. They don’t make money from those sales because their property isn’t being sold.