Saturday, 26 April 2008

Putting your money where your keyboard is

Greg Mankiw notes that the New York Times thinks textbook prices are "outrageous". Their answer? The nanny state of course. It "calls for reform, including Congressional legislation to regulate various industry practices."

But as Mankiw points out
... the Times is a for-profit company in the business of providing information. If it really thought that some type of information (that is, textbooks) was vastly overpriced, wouldn't the Times view this as a great business opportunity? Instead of merely editorializing, why not enter the market and offer a better product at a lower price? The Times knows how to hire writers, editors, printers, etc. There are no barriers to entry in the textbook market, and the Times starts with a pretty good brand name.
One would think that the reason that the Times isn't in the textbook publishing business is simple, it doesn't view the idea as "an exceptionally profitable business opportunity". But his does run counter to the very idea their editorial is based on.

Why are textbooks such a price? On the cost side, one reason may be the size of the print runs. They will be smaller for textbooks than the runs of, say, a best selling fiction work. Given fixed costs are a large part of total cost, this means average costs will be higher for the textbook. On the demand side, demand may be less elastic for textbooks. If the book is required for a course many students will buy it, almost, at any price. Also publishers may be pricing to market. Given that the US is a high income country, publishers my price discriminate by charging a higher price in the US.

No comments: