Let's suppose we take our economics lesson from yesterday and apply it to the problem of textbook costs, spurred by Virginia's second law in less than a year that governs how its public university professors and students work with books. Again, here's that lesson, from Vernon Smith:

A is the customer, B is the service provider. B informs A what A should buy from B, and a third entity, C, pays for it from a common pool of funds. Stated this way, the problem has no known economic solution because there is no equilibrium.

Now, in some sense the textbook story is similar. The negotiation over a textbook selection is between the professor and the publisher, not between the prof and the student. The student is then told what should be bought from the bookstore. The texts, though, are paid for by the student, who has incentives to hold down costs by buying cheaper used books, going to book exchanges on campus, or sometimes just not buying the book and sharing with others. The presence of substitutes, and the pain of high prices, assures an equilibrium.

Introducing market restrictions on the bargain between publisher and professor and between publisher and bookstore, as Virginia is doing, accomplishes little. Remember, the bookstore on campus pays a fee to the university for the exclusive right to sell at the most convenient bookstore location. Reduce bookstore profits, and you reduce the university's revenue from selling space to the bookstore. Where will that be made up, if not tuition or higher taxpayer subsidies to public schools?

Second, as I noted last July, increasing demand for used books by the bookstores is going to increase the value of a new textbook, increasing its price again. More and more, we do not own textbooks, we only rent them. Increasing the rentability of a textbook by making it harder to introduce new editions will only increase demand for books and thus their price.

In short, there isn't a real market failure in textbooks. These restrictions will shift money around and perhaps help hide the true cost of the book, but those costs will be borne by someone.

I have one last prediction: There will be a backlash from faculty in Virginia public universities that their academic freedom is being infringed by these restrictions. Yawn.

UPDATE: From an email by the distinguished Learned Foot, to whom I sent the Chronicle of Higher Ed summary because of his expertise in the academic textbook market (its reporting is in the quotes, from this subscribers link; LF in italics):

"Under the measure, promoted by student advocates..."

...So you know it was well-thought-out.

"come up with their required reading lists for the coming semester early enough for buy-back programs and bookstores to stock up on used copies of those books"

Which will do nothing to lower costs since you can get most widely-used (and a lot of not-so-widely used) used textbooks from wholesalers within a week.

"public colleges must require campus bookstores to sell such textbooks separately."

Bundles are often sold at a discount. This will drive up prices in a lot of instances.

"This legislation brings the power of the free market to textbooks,"

(Uncontrolable laughing)

No, allowing independent competing bookstores (like the one I worked at in college) will bring the power of the free market to textbooks - not rearranging the deck chairs on your monopoly. Especially since it is quite obvious that nobody connected to this "legislation" has the slightest clue about the book business.

Categories: economics, higher_ed