The End of the College Textbook Cartel?
March 28th, 2009 by NumberSix

booksThe topic of this posting isn’t really something about which I usually write articles, but this article about the new e-textbook trial by the University of Texas got me thinking about the college textbook business. This is a business that has all the earmarks of a cartel: there are, relatively speaking small number of firms in the industry, and their product relatively homogenous. There is a relatively stable level of demand for their product – there is a steady supply of college students – and production costs are likely the same across the industry. There are several factors working in favor of the textbook publishers charging as much as possible. (1) A small number of textbooks gain widespread acceptance, thus limiting the amount of competition. (2) College professors – not the students, who must ultimately purchase the textbook – decide what is the required textbook for a course; thus since they are insulated from the financial cost of textbook purchasing, they have little incentive to consider the price when choosing a textbook. (3) Students (or their parents, if the parents foot the bill) who wouldn’t think about dropping 80, 90, or 100 dollars or more for a book under ordinary circumstances may well look upon it as the “cost of an education” and bite the bullet on overpriced textbooks. And all of this means substantial revenue for those in the business: the University of Texas’s financial aid website estimates that students should expect to shell out an average of $409 a semester for books.

The effects of this are obvious to anyone with a Internet access and 5 minutes of free time. At Amazon, the cost of the latest edition of Paul Samuelson’s Economics textbook sells for $140.65. The book is 800 pages long, so I suppose if you believe in the labor theory of value, the cost may be warranted; I, however, see little point in paying that much for what the late Murray Rothbard once referred to as a textbook that “differs from its rivals largely in being bigger, more indigestible, and filled with the flip and unsupported wisecracks with which Samuelson is wont to dismiss deviant economic views.” Around the same time I looked up the cost of the Samuelson text, I was also shopping for a copy of the current┬áBaseball Prospectus, which is available for $13.97. Is the comparison unfair because I am comparing apples and oranges? I could purchase Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics by Henry Hazlitt, which has the disadvantage of being written in plain English and doesn’t feature the gaudy 3-D charts and graphs of Samuelson’s econ text, but serves as a good introduction to the dismal science nonetheless.

I am, of course, not alone in making these observations. Even politicians have taken notice, and in 2007, the Washington Post wrote about an effort by Christopher Peace, a Virginia legislator who planned to create a state-sponsored digital database of print-on-demand textbooks. A company called Flatworld Knowledge has been formed by publishing industry veterans, and is apparently an attempt to provide e-textbooks using the open source model. Textbook file-sharing sites also about: the most popular of these was Textbook Torrents. The site is currently down, but its rule page once exhorted users who saved money downloading textbooks to use the money to buy a scanner and use it to scan as many textbooks as possible. Although this site’s blatant copyright infringement practices makes them an easy target for the enforcement arm of the publishing industry, one wonders whether similar sites will do to the textbook publishing business what music file-sharing did to the recording industry over the last decade.

In any case, it seems unlikely that the college textbook cartel is going to manage to put the genie back into the bottle here. What is going on is a revolution in the dissemination of information, and it is not restricted to music, newspapers, or textbooks. The textbook business, and academia in general, has been shielded from these changes, as the middle class continues to send their children to colleges and universities (and foot the exorbitant bills), but the recent economic downturn may very well strike a fatal blow to these institutions. The fact is that a college education is no longer the ticket to a higher income that it once was. Proponents of a college education will note that on average, college graduates earn more over their careers than non-college graduates, but as any first-year statistics student would know, this is merely confusion correlation with causation. Kathy Kristof has written about this in some detail in her Forbes article, The Great College Hoax, so I won’t reiterate her argument here. But her central finding is worth repeating: “A correlation between B.A.s and incomes is not proof of cause and effect. It may reflect nothing more than the fact that the economy rewards smart people and smart people are likely to go to college. To cite the extreme and obvious example: Bill Gates is rich because he knows how to run a business, not because he matriculated at Harvard. Finishing his degree wouldn’t have increased his income.” It is only a matter of time before the middle class realizes this, and it becomes reflected in lower enrollments and colleges and universities closing their doors. Those who do enroll will likely be more budget conscious.

What emerges after the fallout is something on which we can only speculate. Gary North writes about the possibility of Wal-Mart getting into the higher education business and charging $30 for an online PDF textbook instead of $150 for a hardcover book. Education would be vastly cheaper and more efficient than it currently is. So far, Wal-Mart has not expressed any interest in such a venture, but I tend to agree with North the technological revolution of the 1990’s will eventually result in a complete restructuring of higher education. What is clear is that there is still a need for an educated workforce, whether or not they receive their education from a traditional 4-year college or not. Paying $140.65 for Samuelson’s econ text, however, is something that we can all live without.

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