Riding on John's long coattails, I just wanted to add my two cents on the cost of textbooks. Really this is just a little insight into the process of writing a book and what the publisher and authors get out of it.
I can't speak for all text authors, just from my own experience. As John said, the reason prices for textbooks are so high is the demand is highly inelastic. If an instructor requires the book, then the student either has to buy the book or struggles/fails. Couple that with many students having Mom and Dad pay for their college expenses and the publishers have everything they want for maximizing profit.
That holds for class texts, but I was extremely surprised to learn that it also holds for what I will call research texts. These are books that aren't written for mass audiences but instead are targeted to a highly specialized set of people interested in a narrow (but interesting) topic. Here's a randomly chosen example of such a text: Valuing Environmental and Natural Resources: The Econometrics of Nonmarket Valuation.
Now, this isn't a book that's used in a lot of classes. It's targeted at PhD students and beyond, interested in learning how to estimate models. Not your everyday reading and certainly not going to land on any publisher's best-selling book list (I think we've sold a little over 2,000 copies since 2002).
When Ted and I set out to write that book we held no illusion that it was going to be a money maker for us. We did it to provide a professional service and to enhance our already stellar reputation as geeks. But we were a little surprised to learn the process for pricing one of these books.
Our contract stipulated the following:
- We would earn roughly 5% (I think) on any book sold*.
- We would provide the publisher with a camera-ready copy of the manuscript.
- The publisher reserved the right to price the book.
The first and third conditions are fairly standard. The second condition was not until recently. By camera-ready copy of the manuscript, the publisher requires the author(s) to provide an electronic file of the text EXACTLY as it will appear in print. Modern word-processing software reduces the need for publishers to be typesettrs also. Instead the authopr prides a copy of the text exactly as they want it to look. The publisher then takes a picture of it, prints it, binds it, advertises it and sells it. Most publisher do offer copy editing services, but choosing that option often reduces the commission authors earn on each book.
So we wrote the book and sent it to the publisher. There was no mention or discussion of what the final price might be. When the book was published, it was listed for $100. We were....a little surprised. We almost immediately started hearing complaints from people interested in the book that there was no way they were going to buy the book for that price. So we approached (complained to?) the publisher and asked them to lower the price. As economists, we were of the opinion that the demand for a specialized text should be much more elastic than the demand for class texts and we know the when demand is elastic, lowering the price increases revenues. So what was the publisher's response?
Once all of the libraries buy the book, we'll put out a paperback edition at a lower price.** When they refer to all of the libraries, they are referring to all of the university libraries in the U.S. and most in the rest of the world. You see, university libraries gain reputation based on the number of volumes they hold. So most university libraries will buy almost any academic book that is published--regardless of price. The publishers know this and as a result put out a hardcover version of the book first--priced to extract the surplus from the inelastic demand in the library market. Then they put out a lower priced paperback version to extract the surplus from the more elastic demand in the non-library market.
It's called price discrimination and it makes sense for the publishers. It maximizes profits by pricing high to those that are price inflexible (libraries) and pricing lower to those that are more price flexible (the causal reader). The hardcover/paperback strategy is the publishing equivalent of fly-over-Saturday-and-get-a-discount airline pricing.
*In the end, we figure we made about $.50 an hour writing the book. That's why we are currently working on a second edition.
