How Traditional Publishers Price Textbooks

Traditional publishers make their profits by exploiting monopoly power.  The traditional textbook industry is dominated by a small number of large firms, think Cengage, McGraw-Hill, Pearson.  Economists describe this type of industry as an oligopoly, in which the large firms have a significant amount of monopoly power, which has enabled them to increase prices significantly over time.

It’s not that the publishers are evil people; merely, that profit is their primary goal, and that goal drives them to price their products as they do.  How do they determine prices?

Traditional publishers are masters of price discrimination, which is a strategy to charge different prices to different customers in an attempt to get each customer to pay the most they are willing or able to obtain necessary course materials.  Think about how retailers offer goods for sale at regular price, and then put them on sale for the value customers who aren’t willing to pay full price.  Or think about movie matinees, which charge lower prices during the day when retirees and students can go, but working adults are typically working.

Publishers, of course, prefer students to pay for full price texts.  Unfortunately for them, prices have finally reached a level where students are increasingly unwilling or unable to continue to do so, especially in light of competition from open educational resources (OER), textbooks (and other course materials) that are free to use and offered by publishers like OpenStax and others.

Because of this competition, traditional publishers have rolled out lower priced models, like Cengage Unlimited, where students pay a single fee (currently $119.95 per semester) for access to all the Cengage books their professors adopt.  The more of a student’s courses use Cengage texts, the better deal this would be.  Faculty don’t generally choose texts because instructors in other courses have adopted their texts from the same publisher, so it’s not clear how good a deal this is in practice, though it is cheaper than paying full price.

Finally, if students won’t go for Cengage Unlimited, there is also Inclusive Access (IA).  IA is program by which students in a course get access to an electronic version of the text by virtue of registering for the course.  Universities negotiate for a discounted price, which publishers are willing to offer since all students in the course are required to pay for the book, and the university agrees to bill the students directly.  In other words, IA puts student on the hook with their university to pay for the course materials, whether or not they choose to use them.  Survey data indicate that many students, if not most, go without the text for expensive classes.  Traditional publishers are willing to offer discounts through IA, since 100% of a discounted price is preferable to the publisher than 50% (or less) of full price.  In other words, IA is best described as text rental w/automatic billing by the university. Students do have the right to “opt out” of obtaining the text through Inclusive Access, but this option is not well publicized.  Course materials obtained through IA can cost less than $100 depending on how large the university/system is and how well each university/system negotiates the price.

Publishers of OER have rightfully publicized the significant money students have saved when faculty adopt OER.  The commercial publishers have recently coopted this marketing device with images like the one above.  But there is a significant difference.  The money OER saves students is money that comes out of traditional publishers’ profits.  By contrast, the money traditional publishers “save” students, when they offer lower price options is money they previously took from students.

Should we give credit to traditional publishers for offering lower price options?  Sure, but don’t imagine they are doing this out of the goodness of their hearts.  Given the competition from open, traditional publishers are attempting to charge the most they can get away with.  In other words, the lower priced options are the best traditional publishers can do.

Don’t be fooled!  I’ve never seen a traditional publisher offer a better price than OER.

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