Living Economics

Licensing Textbooks
Unbundling the intellectual content from the physical embodiment of textbooks might lower the prices of textbooks.

When new editions of textbooks for a certain course are coming out, every professor who is about to teach the course will be frenzily visited by the publishers' representatives to promote their own publishers' textbooks. Until the next edition of the same textbooks are published, it is hard to get these representatives to pay any attention to the professors unless they are about to teach other courses that happen to have new editions of the textbooks coming out. This behavior on the part of the book representatives is quite rational if somewhat shortsighted. The reason for this behavior is quite simple. Most new-edition textbooks are sold in the first year of the edition cycle. In the other years, few new books of that edition are sold since most students just buy used books at lower prices. The profit resulting from the used-book market does not go to the publishers at all.

If publishers have only one chance to make any profit, they naturally jack up the prices of new books in their first year to make up for the lean years when they have no profit from the same edition. In an ideal world for the publishers, textbooks will disintegrate at the end of the semester like so many perishable goods that generate recurring revenues for the producers.

Like all other durable products that have a sizable second-hand market, producers of new models must compete with the old models from which they no longer derive any profit. If they make their products less durable, buyers would perceive the products as low quality and stay away. If they make their products too durable, replacement purchases are postponed. This dilemma is more serious in a mature market where most potential buyers have already owned earlier models.

One strategy is the well-known planned obsolescence. The old models may still be serviceable, but the new models are more desirable for various substantive or affective reasons. In the case of textbooks, more colors and more ancillary materials that add to the production costs.

Unlike durable goods such as cars, textbooks have two distinct components desired by buyers; namely, the intellectual content and its physical embodiment. As currently marketed, these two components are bundled. Sold in a bundle, the publishers have no way to earn recurring revenue for its intellectual content except in the first year of the edition cycle. So prices for new textbooks must be high enough to cover the lean years and edition cycle has to be shortened to generate recurring revenue. It is difficult to justify new editions in a mature subject such as calculus or to chop down more trees to print new editions while the old editions are still perfectly usable.

But if the intellectual content is licensed annually and separately from the physical embodiment of the textbooks, the books could be priced much lower. The license fees would be payable by the universities and collected from the enrolled students. Many happy things can result from such an unbundled pricing: lower prices as the license fees are negotiated between universities and publishers and used copies could be sold for more years; longer edition cycles and lower material and effort waste as the publishers are guaranteed recurring revenues between editions.

This unbundling is quite obvious for online textbooks where students pay for a semester-long password to online access. Because online textbooks have no comparable physical embodiment as hard-copy versions, there is not even a used-book market to speak of. But because the intellectual content is not licensed collectively through universities, students may end up paying more for online access than hard copies when the resale value of hard copies is taken into account.

Note:
  1. The dependence of publishers on first-round sale for trade books is getting more acute as the online used-book market gets more organized. For example, on Amazon.com, Bill Clinton's hard-cover My life sells for $23-10 new but only $6-50 used. Hillary Clinton's hard-cover Living History sells for $18-48 new but only $0.79 used (1/3/2006).
  2. The dependence of publishers on first-round sale for trade books is getting more acute as the online used-book market gets more organized. For example, on Amazon.com, Bill Clinton's hard-cover My life sells for $23-10 new but only $6-50 used. Hillary Clinton's hard-cover Living History sells for $18-48 new but only $0.79 used (1/3/2006).
References:
  • Granof, M. H. "A new model for textbook pricing." Chronicle of Higher Education.
  • Levenson, L. "Textbook economics: why those volumes cost so much." Chronicle of Higher Education.
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