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US: Act brings in much-needed textbook competition

Economics textbooks extol the virtues of competition. However the market for textbooks is anything but competitive. A professor typically requires students to buy a specific textbook. Even if that text is available from sellers such as amazon.com, students may not discover which books are required until the first day of classes, by which time it is too late to get the best on-line deals. The US Higher Education Opportunity Act is trying to change that.

The act places new requirements on colleges, universities and textbook publishers.

First, it requires colleges' and universities' online course schedules to list the required and recommended textbooks, along with the International Standard Book Number (ISBN).

This simple change will introduce much-needed competition into the retail market. University bookstores will have less ability to exploit their market power and charge large mark-ups, since students can order books for less from on-line distributors before classes begin.

Yet every silver lining has a cloud (or three).

Increased competition may force university bookstores out of business. If university bookstores have such high costs that they cannot break even selling books at a competitive price, then maybe it is best that they get out of textbook retailing. The major downside that I can see for students is that it would be more costly for them to return texts if they decide to drop a course.

Perhaps without a guaranteed market, bookstores will no longer be able to stock sufficient quantities of all texts, and students will find that they are simply unable to acquire the required text.

The truth is that university bookstores do not have guaranteed markets right now. In a class of 100 students, 10 might not buy a textbook at all, 30 might buy a used text from a friend, 20 might be organised enough to download the course outline in August and buy the text from Amazon.com, and so on. It is an open question whether letting students know which textbooks are required ahead of time will increase or decrease that uncertainty.

Universities typically have revenue-sharing arrangements with their bookstores. If students buy books from AbeBooks.com, universities will face a loss of revenue. This is true. But it is not clear that textbooks sales are an efficient way of charging students for education. Unlike tuition, textbook purchases generate no tax credits for students, and only a portion of the mark-ups students pay are retained by the university.

Of all of the requirements in the new Act, this first one is what I would most like to see introduced in my country, Canada.

Sure, there would be some teething issues ¬¬- universities would have to reprogramme their on-line class schedules to include a link to required and recommended textbooks, recalcitrant professors would have to be pestered for textbook information. Because education is a provincial responsibility, each province would have to enact separate legislation. But in my view it would deliver concrete benefits to students.

A second requirement of the US Higher Education Opportunity Act is that universities include information about textbook prices on their class schedule, specifically the retail price in the campus bookstores.

I have no problem with this requirement to the extent that it promotes competition in the retail market. My concern, however, is that students might choose their classes based on the textbook prices.

This is not a good strategy, partly because the price of a text in the university bookstore is not a good indication of the price a student will actually pay for the book.

A text that is used year after year will typically have a thriving second-hand market. The actual cost of a text to a student is the price paid less any revenues received from selling the text at the end of the year. This cost may be a fraction of the retail price - or quite substantial, if a text is about to go into a new edition.

The other reason not to choose courses based on textbook prices is that the idea of a required text is becoming obsolete. Students rationally choose how much effort to put into a course, based on the marginal benefits (the expected increase in grade received, value of getting higher grades) and marginal costs (opportunity cost of time, direct financial costs).

The marginal benefit of buying a textbook depends on numerous factors: how closely the professor follows the text, the number of substitutes available, the value that a student puts on getting higher grades, and whether the student is trying to get into graduate school or just trying to pass.

Now that students can readily find definitions - sometimes even accurate ones - on Wikipedia, and professors routinely post PowerPoint presentations on their websites, substitutes for textbooks are readily available, and the marginal benefit of buying a textbook has fallen.

Students often ask me if they have to buy the book for a course I'm teaching. I find the question impossible to answer. Yes, students in the past have passed the course without having a copy of the text. But why would I have said that the textbook was required if I didn't think that, for an average student, the benefits of having a text outweigh the cost? But perhaps I'm not sensitive enough to my students' needs.

A third provision in the Act attempts to harness professors' desires to do the right thing. It requires publishers to inform professors, in writing, of two important things: the wholesale and retail price (or 'net' and 'list' price) of the textbook and any other materials; and the textbook's availability in other formats at a different price, for example, in paperback

A professor choosing a textbook is in much the same position as a doctor writing a prescription. There are many drugs that will do more or less the same thing. Some are more or less effective, some are more or less expensive. Would you want your doctor to write you a prescription for a less effective medicine just because it was cheaper? Would you as a doctor be prepared to do so?

I have been using the same textbook for my third-year public finance courses for over 10 years. I have a complete set of PowerPoint slides which have taken many hours to develop and refine. If I switched texts, I would have to completely redo the slides. And because switching texts would eliminate the thriving second-hand market, students could end up paying more. And for the course that I teach - policy-oriented public finance - there is only one Canadian textbook.

Indeed, the relatively small size of the Canadian market means that it is much harder to introduce competition via professorial choice. In many areas, there are just too few texts to choose from.

Once again, the parallel with medicine is instructive: fight monopoly with monopsony, an economics term that refers to a situation where there exist several sellers but only one buyer. Imagine if students paid 'all materials inclusive' tuition fees. Instead of intermediate micro textbooks being sold directly to students, universities bought a stock of, say a thousand intermediate micro textbooks, which students could use for a term at no cost if the textbook was returned in reasonable condition.

It's not complicated; high schools do it. The textbooks would be replaced when they wore out or when they became outdated - not on the publishers' new-edition-every-three-years cycle. If universities were able to negotiate a bulk wholesale price of say $100 per textbook and then use the texts for 10 terms, the cost would work out to $10 per student per term.

Another thinking-outside-the-box approach is the British model. Professors list three or four different texts on the course outline, with the advantages and disadvantages of each one laid out. The outline indicates the relevant chapters for each of the texts, and students can choose which one to buy.

Now, it does mean that students sometimes have to figure out more things on their own - one text might use the notation x1 and x2 while another uses the notation x and y. But students can make their own price-quantity trade-off.

The last provision of the Higher Education Opportunity Act that I find interesting relates to the publishers' practice of eliminating the second-hand textbook market by introducing new editions. Publishers are now required to tell professors, in writing, when the last three editions of the textbook were published and share with them the major differences or revisions between the current and previous editions of the textbook.

This is a good idea, but the Act does not go far enough. The list of the major differences or revisions should be available where students can access it, such as the publishers' website. And I am sceptical about how accurate these descriptions will be.

I can imagine the publisher's description: "Examples in this chapter have been completely re-worked and updated."

I can better imagine its application: "Why everyone loves Britney Spears" on p. 272 in the 6th edition has been changed to "Why everyone loves Christina Aguilera" in the 7th.

I'm not sure what the future will hold. Even now there are texts such as David Friedman's Price Theory book available online. Professor Ben Alarie at the University of Toronto law school has just launched a site which could be the starting-point for a free, electronic Canadian public policy textbook. But that's a topic for a future commentary.

* Frances Woolley is an economics professor at Carleton University in Ottawa, Canada.
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