Shut up, OSPIRG.
As the OSPIRG campaign against the high price of textbooks continues to demonstrate their complete and utter inability to understand markets, a number of Econobloggers have taken a look and come to varying conclusions.
Henry at Crooked Timber suggests that textbooks have relatively inelastic demand. His intitial comment about “low demand” causing high prices on some books is, umm…backwards…he’s intuition is correct: that it costs so much to produce limited runs the books are expensive, but that factors in as “high marginal costs” not “low demand.” In a world where all firms have some pricing power, especially in publishing where one publisher might have exclusive rights to a book, higher marginal costs will mean significanly high prices as the monopolists extract rents from the market. Anyway, moving right along…
Alex Tabarrok suggests that third-party decision making is the cause. He also draws a nice parallel with healthcare, and I’m much persuaded by his take on that.
Mark Steckbeck suggests that the increase in resale has led publishers to capture the resale value in their initial price. He even does a present-value calculation, exciting!
I’m inclined to think that it’s probably all of these things in concert. Any one would be enough to increase prices some, all of them at once is enough to really amplify the effect. If kids are actually achieving a net welfare gain through resale, then the OSPIRG kiddies are trying to make people worse off, which should come as a surprise to exactly no one. Oh, and you’ll be excited to note that there’s an OSPIRG blog.
UPDATE: Commenters at Coffee Grounds point out that in a high fixed-cost industry, the supply curve is discontinuous and therefore low demand can lead to higher prices because of the discontinuity in supply. Fixed costs play a role in the entry/exit decision of the firm, and because the marginal cost of the first unit is so very high, the price of it will be as well. I considered adding a couple of graphs to the update, but stopped myself. If you must have graphs, email me and I shall construct them.
