Todays guest post is from Philip Soos, Masters research student, School of Humanities and Social Sciences at Deakin University
Although student life at university is generally enjoyable, one aspect that blemishes the experience is the astronomical cost of textbooks.
As many students head back to university this year, they can expect, over a typical three or four year undergraduate course, to spend thousands of dollars buying all the recommended textbooks. If you’re a student with no money, this can only make matters worse, especially since the cost can’t be bundled into your HECs loan.
Most books aren’t so expensive, so why are textbooks different? The explanation lies in the market forces behind these costly items.
A matter of markets
Textbooks cost so much because the author’s work is protected by a government-granted monopoly on the product, in this case, a copyright. This restricts other parties (apart from those licensed) from publishing the textbook and thwarting the sale at market competitive prices.
To be efficient, economic theory stipulates products should be sold at their marginal cost. The price should be set at the cost to the printer to produce the last (or next) copy of a textbook.
If this were so, textbooks would cost between $10 and $20 a copy. Instead, students are slugged $100 to $200 a copy.
Unfortunately for the average student, copyright policy has been in place since the 16th century and has been radically strengthened in the last thirty years.
Modern textbooks are protected by ancient monopolies because we feel authors deserve an appropriate income from writing a textbook due to it being a creative work composed of information that has aspects of a public good.
Two wrongs make a copyright
The information itself, in economics terms, is non-rival and non-excludable, though the textbook is the physical embodiment of the information as a private good. If textbooks are produced without a copyright, nothing stops an entrepreneur from copying and selling it at market competitive prices.
Due to this, no initial publisher would enter into a contract to pay an author a considerable sum to produce a textbook as competitors can replicate it without having to pay the author. To recoup the funding to the author, the contracted publisher has to charge a price higher than its competitors, thereby rendering itself unable to effectively compete.
A copyright “fixes” this problem by eliminating competition altogether, allowing the publisher to charge what the market will bear, resulting in monopoly pricing.
There are problems with this method of ensuring textbook production. The markup from marginal to monopoly price functions as a consumption tax, resulting in a deadweight loss. The price increase can be considerable: a textbook with a marginal cost of $20 now costs $200, resulting in a relative markup of 900%.
In effect, the government intervenes into the economy via granting copyrights, thereby allowing a private party to levy a tax upon consumers.
The long con
This leads to another inefficiency: in the pursuit of profit, a publisher will issue a next edition of a successful textbook annually (perhaps even half-yearly), adding to its content, which changes page numbering and invalidates the previous edition making it near impossible to sell.
It is common for students today to purchase textbooks that are over half a thousand pages long, in the tenth edition. There is no way that the typical student uses a fraction of the content in their overpriced textbooks, which they have difficulty selling to the next intake of students because the publisher has now released the eleventh edition.
The con is further entrenched by the nature of group learning. Even though students pay for the textbooks, lecturers decide what textbooks should be used (patients purchasing medicines their doctor has prescribed face the same issue). Accordingly, a free market cannot exist as consumer choices are determined by other factors.
If students knew enough about the subject matter to determine the difference between similar textbooks, they would know enough to not have to attend university in the first place. Students cannot participate properly in learning if they purchase dissimilar textbooks on the same topic, and editions of the same textbook may have differing content.
A public solution
Fortunately, there is a way around the system of public subsidy, private profit that is the textbook industry. The simple solution is for either government or universities to fund the production of textbooks directly, and place the content in the public domain.
Some other means will be required to fund textbook production, rather than relying upon a privately-levied tax paid by consumers.
Economist Dean Baker, in the aptly-titled report Are Copyrights A Textbook Scam? Alternatives to Financing Textbook Production in the 21st Century, argues that the current method of financing textbook production through copyrights is an inefficient anachronism, and badly needs to be overhauled. The report also details some of the non-monetary benefits that accrue to both students and teachers.
Baker proposes a new system whereby a relatively small sum of taxpayer revenue is divided and allocated to ten competing firms with a mandate to finance the production of textbooks, which are then placed in the public domain. Firms’ performance is subject to audit at a regular interval (five or ten years), with the worst two performers removed and replaced by new firms. This arrangement can be run side by side with the current copyright system, allowing for a relative test of the two forms of government intervention.
Regardless of how a taxpayer-financed system is set up, the benefits of placing textbooks in the public domain are obvious. Textbooks can be sold at marginal cost, without gouging students or limiting the pursuit of knowledge.
Given that many use laptops and tablets, textbooks can be downloaded for free as electronic reproduction of information is costless, also saving on the material used for hardcopies.
Without the perverse incentive to continually alter content and issue new editions, textbooks will be leaner and more manageable. Teachers are also advantaged as they can choose content from different freely available sources in order to maximise learning outcomes in the classroom.
Modern problems from an ancient source
In this day and age, it is profoundly odd that textbook production continues to be protected via a 16th century economic mechanism that has no place in a technologically advanced, information-driven economy where every student and teacher has Internet access and is computer literate.
Even more peculiar is that this form of gouging students is not discussed.
Although monopolistic pricing and rent-seeking is a godsend for publishers and a handful of elite academic authors, there is no reason why this inefficient system should be tolerated.