Tuesday, August 30, 2016

A Brief History of the College Textbook Pricing Racket

When I recently wrote about airport stores, one of the most interesting (albeit minor) facets of the piece was the fact that airport travelers are generally considered a captive audience, making it easy for shops to jack up prices.

Airports, though, are amateur hour compared to the college textbook industry.

Any industry that can increase its prices by 1,041 percent over a 38-year period—as the textbook industry did between 1977 and 2015, according to an NBC News analysis—is one that knows how to keep, and hold, an audience. (It's almost like they're selling EpiPens.)

And, as students across the country return to school, this is probably the perfect time of year to ask: Was it always this way? The answer: no, and you can blame a big shift in the '70s. (...)

What happened in the '70s? Let's ask someone from the '70s: In a 1975 piece for the The Annals of the American Academy of Political and Social Science, journalist Phillip Whitten, who spent time running his own publishing firms, said that shifts in the uptake in textbooks, driven by a desire to standardize curriculum as well as to make things easier for students, led to a significant increase in the use of textbooks during this period.

But textbook companies of the era didn't have it easy. In his piece, Whitten crunched the numbers of a hypothetical textbook, one sold for $12.50 but generally offered to college stores at a wholesale price of $10. (In today's dollars, the book would have sold for $44.73 before markup by the bookstore—not a bad price, actually.)

In Whitten's example, the book sold 50,000 copies, netting half a million dollars in sales, but was offset by a variety of costs, including royalties, marketing, and manufacturing. Still though, the book made $79,000 in pre-tax profit, a solid 15.8 percent margin. But he noted that the game for publishers was generally not that easy, due to the existence of both fixed and variable costs.

"If Sociology in Modern World had sold 20,000 copies, we would have lost $75,000; had it sold 10,000 copies—and there are many texts that do not do even that well—our loss would have been greater than $126,000," Whitten wrote.

(How does that compare to the modern day? Priceonomics writer Zachary Crockett, who spent time working for a textbook publisher, breaks down the math similarly to Whitten, though these days, publishers tend to make $40 in pure profit on a $180 book—a 22 percent margin.) (...)

Last year, two separate incidents occurred that raised the ire of textbook critics. In some ways, they kind of dovetail into one another.

The good professor, punished: Last October, Alain Bourget, an associate math professor at the California State University at Fullerton, received a formal reprimand after choosing not to give his students the $180 textbook recommended to him by the school, instead offering a cheaper $80 option, supplemented by online offerings. The school said this broke the rules, because he veered from the book every other introductory linear algebra course was using at the school. He fought the reprimand, but failed. (His hometown paper treated him like a hero.)

The economist who's made bank from a single book: Harvard University Economist Gregory Mankiw was raked over the coals by The Oregonian last year for the high cost of his tome Principles of Economics, an introductory book that sells on Amazon for $333.35 and can be rented on Chegg for $49.99. The absurdity of Mankiw's book, which exemplifies many of the economic disparities covered in the book, was further highlighted by writer Richard Read's story. When asked if he'd ever write an open-source textbook, Mankiw had this to say: "Let me fix that for you: Would you keep doing your job if you stopped being paid? Why or why not?" A fair point—until you realize that Mankiw has, by some estimates, made $42 million in royalties from this book alone.

by Ernie Smith, Pricenomics |  Read more:
Image: m01229/CC BY 2.0