Background

The college textbook market is complex, comprised of many publishers,  retailers, and used book wholesalers. Textbooks include new and used  books and can be combined with supplemental learning materials.   Figure 1 illustrates the typical life cycle of a textbook and the roles of  publishers, instructors, bookstores, wholesalers, and students.
Publishers develop and produce textbooks and accompanying materials  for instructors and students. While there are hundreds of college textbook  publishers, there has been substantial industry consolidation in recent  years, with sales at five of the largest publishers representing over   80 percent of the market in 2004. Because developing a textbook involves  a significant investment of time and resources, publishers carefully  consider the potential risks and rewards before publishing a new  textbook. Publishers consider market needs, including the size of the  market and competing products. They also consider how the textbook  would fit into their existing portfolios because they are more likely to  publish in subject areas that complement successful existing textbooks.  For example, a publisher that has successful textbooks for calculus might  want to develop a textbook in an adjacent area like statistics. Publishers  may also consider what value they can add by publishing a given textbook  to move beyond reproducing what is already available in the market.
Publishers direct their marketing efforts at instructors, and sometimes  academic departments that make the decision about the course materials  they will use and ultimately require their students to purchase. Publishers  employ sales representatives who often call on instructors in person to  discuss product options and provide instructors with free sample  textbooks and instructional materials for consideration. Publishers also  market their products at professional conferences and meetings, as well as  through targeted mailings. Sales representatives typically receive a base  salary and have the opportunity to earn commissions based on the volume  of new course materials that are sold. They receive no compensation for  materials that students purchase used.
College textbook retailers collect information about the materials  instructors have selected for their courses and stock them for student  purchases. Located both on and off campus, college textbook retailers are  made up of a diverse group of businesses including independent  booksellers, campus cooperatives, and large retail chains. The National  Association of College Stores reports that about half of college textbook  stores are owned by the postsecondary institution they serve and one-third  are operated through lease agreements by outside companies.  The  companies that operate stores on college and university campuses through  lease agreements typically pay a commission based on the total volume of  sales to the postsecondary institutions in lieu of rent. It is not uncommon  for the colleges and universities that contract with them to limit the  margin on textbooks.
As bookstores receive information from instructors on the books required  for the upcoming term, they determine the number of textbooks to order  based on factors such as estimated enrollment and previous sales. Even  with information on the number of students enrolled in the class, it can be  difficult to estimate the number of books students will buy because many  colleges and universities are served by more than one bookstore and  students may also obtain textbooks from a variety of other sources.  According to the National Association of College Stores, over   900 postsecondary institutions are served by multiple bookstores, with  over 70 bookstores serving the 10 largest colleges and universities.  Additionally, because students now have the opportunity to purchase their  textbooks via the Internet from online retailers, no bookstore is without  competition.
Retailers also attempt to make used books available to students,  recognizing that many students prefer to purchase used books because  they are generally less expensive. Bookstores generally buy as many used  textbooks from their students as possible and then turn to used textbook  wholesalers to obtain additional copies. However, the demand for used  textbooks is much greater than the available supply, which is estimated to  be between 25 and 30 percent of all textbooks in the market. The ability of  bookstores to make used books available depends, in part, on how early  they are aware an instructor will use a certain title. Receiving an order for  a textbook by the end of a term increases the ability bookstores have to  purchase used textbooks, particularly if the book is currently being used  and they can buy back the book directly from students who have finished  using it. Once the supply of used books has been exhausted, bookstores  complete their orders with new textbooks from publishers. When  instructors require new editions or materials that publishers have  customized specifically for their course, bookstores must rely exclusively  on publishers to fulfill their orders.
Wholesale companies facilitate the circulation of used textbooks by  purchasing used books from retailers and directly from students to  distribute to other retailers in need of used textbooks. Three major  wholesale companies distribute textbooks nationally, and several smaller  wholesalers distribute textbooks in specific regions of the country. Two of  the national wholesalers also operate retail bookstores, and the other is  tied to a retail chain through common ownership. Wholesalers have  developed a complex model for determining the wholesale value of any  given textbook based on factors such as demand, the available supply, and  when a new edition is likely to be released. Because the supply of used  books is limited and demand is high, wholesalers rank retailers in order to  determine which will get first priority in receiving the used books they  desire. Generally, national wholesalers give first priority to retailers that  supply them with the most used books and do not return many of the  books they purchase. To encourage bookstores to supply used books,  wholesalers pay a commission and cover the cost of shipping the books to  their warehouses.
While students have little choice over which textbooks they must  purchase, they have some choice in where they buy their textbooks. Many  campuses are served by multiple bookstores, and students may also be  able to obtain their books through book exchanges on their campus.  Advances in technology have allowed students to bypass traditional  textbook outlets with expanded purchasing options online. A local  bookstore may provide convenience, speed, and return options, while  online retailers and student-to-student exchanges may offer lower prices.  In some cases, textbooks meant to be sold in international markets at  lower prices are also available to U.S. students through online retailers.
In addition, students can sometimes offset their costs by selling back their  books at the end of the term. Generally, if a book is in good condition and  will be used on the campus again, bookstores will pay students 50 percent  of the original price paid. If the bookstore has not received a faculty order  for the book at the end of the term and the edition is still current,  bookstores may offer students the wholesale price of the book, which  could range from 5 to 35 percent of the new retail price. This practice  allows bookstores to provide an added service to students while  supporting the national availability of used books. Students can also sell  their books online to a wholesaler or to an individual. However, if a new  edition of the book is forthcoming, students would not generally be able to  sell back the book.

	College Textbook Prices Have Grown at Twice the Rate of Inflation, Trailing Annual Tuition Increases

College textbook prices have risen at double the rate of inflation for the  last two decades but have followed the trend of tuition increases at  postsecondary institutions. The average growth in college textbook prices  has been 6 percent per year since academic year 1987-1988, ranging from   4 percent in 1993-1994 to 9 percent in 1989-1990. Meanwhile, tuition and  fees have increased at an average of 7 percent per academic year during  the same period, while overall price increases averaged 3 percent per  academic year. Not only have textbook prices steadily increased each  year, but the overall change in textbook prices has been substantial.  According to a BLS research series on the CPI for college textbooks  shown in figure 2, prices in December of 2004 were 186 percent higher  than they were in December of 1986, the first month in which data were  available, compared with a 240 percent increase in the cost of tuition and  fees at colleges, universities, and professional schools. Overall price  inflation was 72 percent during the same time period.
With certain publisher packaging practices, supplementary products may  sometimes be included in the price of the textbook for this index, but it is  not possible with available data to determine the extent to which these  practices may have contributed to price increases. The prices collected for  BLS’s textbook index represent new college textbook prices at colleges,  universities, and professional schools at which textbooks are required.  Because only the price of the textbook is collected, the prices of any  supplementary materials that may be available are typically not reflected  in the index. However, if the textbook is only available at the bookstore in  combination with some other course material—a practice commonly  referred to as bundling—then the price of the entire bundle is collected.  Officials at the Bureau of Labor Statistics told us that the practice of  bundling has become increasingly prevalent in recent years. However, they  told us it is not possible to determine with the information available the  extent to which bundling may have contributed to increases in college  textbook prices. For more information about the methodology used for  constructing this index, please refer to appendix I.
Increases in college textbook prices were particularly high for the  academic years 1989-1990 and 2001-2002, at 9 percent and 8 percent  respectively. Since 2001-2002, the growth in textbook prices has been  slowed, increasing by 5 percent in 2003-2004. Appendix II contains more  details on average annual changes in textbook prices.
While increases in textbook prices have not followed far behind hikes in  college tuition and fees, the cost of textbooks and supplies as a percentage  of tuition and fees varies for degree-seeking students attending different  types of institutions. According to data from Education’s Integrated  Postsecondary Education Data System, first-time, full-time students  attending 4-year private, nonprofit colleges were estimated to spend $850  for books and supplies in their first year, or 8 percent of the cost of tuition  and fees during academic year 2003-2004, as shown in figure 3. In  contrast, first-time, full-time students paying in-state tuition at 4-year  public colleges or universities were estimated to spend 26 percent of the  cost of tuition and fees on books and supplies, or $898, during the same  period. At 2-year public colleges, where low-income students are more  likely to begin their studies and tuition and fees are lower, first-time, full- time students are estimated to spend 72 percent of the cost of tuition and  fees on books and supplies. Specifically, 2-year public colleges estimated  that their first-time, full-time students would spend about $886 in 2003- 2004 on books and supplies. In 2002-2003, the last year for which  enrollment data are available, students attending 2-year public colleges  represented 42 percent of all postsecondary students.

	Publisher Investments in New Products Have Contributed to Increases in Textbook Prices

While publishers, retailers, and wholesalers all play a role in textbook  pricing, the primary factor contributing to increases in the price of  textbooks has been the increased investment publishers have made in new  products to enhance instruction and learning according to industry  executives we interviewed. In particular, publishers point to the high cost  associated with the development of technology applications that  supplement traditional textbooks. Publishers told us they have made these  investments to meet changing needs of higher education, such as the  increase in part-time faculty who require greater instructional support and  supplements that will enhance student learning of the subject matter.  While wholesalers, retailers, and others do not question the quality of  these materials, they have expressed concern that the publishers’ practice  of packaging supplements with a textbook to sell as one unit limits the  opportunity students have to purchase less expensive used books.  Additionally, wholesalers, retailers, and others have expressed concern  about how certain publisher practices, such as revising textbooks more  frequently and increasing the availability of custom publishing options for  instructors, have affected their ability to help students save money by  providing used textbooks and buyback services.

		How Textbooks Are Priced

Publishers set the net price, or the price bookstores pay publishers to  obtain the textbook, based on development and production costs,  expected sales, and competition from comparable products available in  the market. While the amount spent on development and production varies  across publishers and specific titles, the publishers to whom we spoke  underscored the substantial investments they make before a single  textbook is sold. These include the cost of author advances, the  development of content for the textbook and supplements, copyrights and  permissions for illustrations and photographs, along with the cost of  typesetting and printing enough copies to provide sample copies and cover  expected sales.
In estimating expected sales of textbooks, publishers must consider the  size of the overall market for a given textbook, the amount of market share  they can reasonably capture based on the availability of competing  products, and the availability of used books in subsequent years. The  publishers we talked to focus heavily on publishing textbooks for  introductory-level courses because the market is larger, even though  competition for market share tends to be greater. Publishing in smaller  markets can still be attractive, though, according to one publishing  executive, because publishers may be able to attain greater market share,  as there are generally fewer competing titles. Regardless of the market for  a particular textbook, publishers told us that new textbook sales are  highest in the first year an edition is available, with sales declining each  year as the supply of used books becomes greater.
Publishers told us that they must price their textbooks based on what  similar textbooks in the market are selling for, even if it will not generate  enough revenue to offset their costs or they could lose sales to more  competitively priced products. As a result, publishers noted that textbooks  may not realize a profit in the first year of publication. Publishers told us  that they are willing to take this financial risk because of the long-term  rewards they expect for successful textbooks.
While each college store determines its own pricing model, many utilize a  similar approach for determining the price of new and used textbooks.  Bookstores set the retail price to ensure a certain percentage of the selling  price goes to the bookstore. This percentage, commonly referred to by  retailers as the margin, covers bookstore costs and may allow the store to  realize a profit. While the margin may vary at different individual  bookstores, the average margin on new college textbooks among stores  reporting to the National Association of College Stores is about   23 percent. The margin on used textbooks, however, is typically higher.  Used textbook prices are directly linked to new textbook prices as  retailers and wholesalers typically follow a traditional pricing practice.  According to this practice, retailers purchase used books from  wholesalers at 50 percent of the new retail price and in turn charge  students 75 percent of the new retail price to purchase the book. This  pricing practice results in a 33 percent margin on used books for  bookstores. Table 1 illustrates the typical pricing practice for a new and  used textbook. College bookstores justify higher margins on used  textbooks based on increased inventory risks and resources involved in  preparing the books for resale.

		Publishers Have Developed New Product Options to Meet Perceived Needs of Instructors and Students

The factors that publishers consider in determining the price of their  textbooks has not changed over time, but the nature of offerings from  higher education publishers has changed in recent years. Publishers say  they have invested heavily in developing additional textbook supplements  for instructors and students, particularly resource-intensive technology  applications, and ensuring that the content they provide is updated with  the most current pedagogy and examples. Publishers told us they are  making these investments in response to the changing needs of the higher  education community and to remain competitive in the marketplace. While  supplements are not new, publishers told us the number and variety of  supplements available for a given textbook have increased substantially in  the last 10 years.
Even though there has been widespread consolidation among textbook  publishers over the last 20 years, publishers characterized the textbook  market as intensely competitive and said this competition drives what  products they offer and ultimately how they price their textbooks.  Because the adoption process in which instructors select the textbooks  and materials they wish to use in their courses is central to ensuring sales,  publishers told us that they focus their efforts on developing textbooks  and accompanying materials that will meet the diverse needs of  instructors and their students. To ensure their products are appealing to  instructors, publishers say they must offer a wide range of materials that  accommodate a variety of teaching and learning styles. Publishers fear  that if they are unable to keep up with offerings of their competitors they  will lose adoptions and ultimately market share. One industry analyst we  spoke to speculated that the consolidation of publishers and a lack of new  entrants are largely factors of the enormous investments required to  compete in the marketplace. The analyst said that by consolidating,  publishers may gain economies of scale and spread their overhead and  other costs across more titles.
Publishers say the investments they are making in product development  are largely in response to changes in higher education that have resulted in  publishers playing a more central role in facilitating instruction and  learning. For example, publishers have always provided no-cost  instructional supplements to help faculty teach their courses, but these  offerings have intensified in recent years. In particular, publishers told us  that the increased demand for instructional technology applications has  resulted in high development costs. They say that since the advent of the  Internet, postsecondary institutions have made substantial investments in  technology and increased their expectations for instructors to make use of  technology in the classroom. In response to this demand, publishers have  invested millions of dollars in developing content that can be delivered via  technological applications, such as Web sites and CD-ROMs, to  accompany their textbooks. Some of these applications are designed to  help instructors be more effective in the classroom, while others are  intended for student use to enhance their learning of the material.
Publishers told us that they have tailored their instructional supplements  to enhance instructor productivity and teaching, largely to meet the needs  of instructors in an environment of funding cuts. Publishers say tools  designed to enhance instructor productivity are in demand because  reductions in the number of teaching assistants available to help  instructors have increased the administrative burden for instructors. For  example, publishers have developed online homework and quizzes that  allow instructors to track student progress quickly, saving instructors  time. The homework and quizzes students complete online can be graded  immediately to provide both the instructor and students with immediate  feedback on performance. The need for greater teaching support is  another area in which publishers told us there has been increased demand,  stemming largely from a reduction in the employment of full-time tenure  track faculty at institutions across the country. Publishers say they are  now providing more extensive curricular support including lesson plans,  homework sets, multimedia lectures, and even workshops on specific  teaching approaches. While these materials are provided at no cost to  instructors, the cost of developing them is built into the price of the  textbook.
Publishers also described a wide array of supplements that faculty can  adopt that are intended to enhance student learning and success in the  course. Publishers say there is a growing demand for these products  because the number of students who are unprepared for college-level  work has been increasing. Student supplements are either sold separately  or bundled with the textbook, but the bulk of the development costs are  typically built into the price of the textbook, according to publishers.  While publishers produce print supplements, such as study guides and  solutions manuals to accompany their textbooks, technology content  represents the area in which publishers say they are investing more  substantially. For example, one publisher told us the company had  invested over $1 million in the development of a CD-ROM that provides  three-dimensional images to enhance learning in anatomy. In the short  term, these investments are very costly for publishers, but publishers are  predicting increased demand for these products over time, with more  content delivered digitally. Electronic content is appealing to publishers  because sales of these products would be less affected over time by the  used textbook market than print products, which can more easily be  bought and sold in the used textbook market. Specifically, passwords to  restricted access Web sites cannot be resold, and there is no national used  market for other types of electronic products, such as CD-ROMS and  software, because retailers and wholesalers cannot easily verify that the  products are functional once they have been used.

		Wholesalers, Retailers, and Others Express Concern That Some Publisher Practices May Unnecessarily Increase Costs to Students

Wholesalers, retailers, and some public interest groups acknowledge that  publishers are making substantial investments to develop textbooks and  supplementary materials, but they have expressed concern about the  impact some publisher practices may have on student costs. In particular,  they think some of the strategies employed by publishers, such as  bundling textbooks with supplements and revising textbooks more  frequently, may limit the ability students have to decrease their costs by  purchasing less expensive used textbooks.

			Concerns about Bundling

Wholesalers, retailers, and some public interest groups agree that there  has been a proliferation of supplements in recent years, and they have  expressed concern about the increasing practice of selling supplements  and textbooks bundled together in a package. While wholesalers and  retailers do not question the quality of these materials, they suggest the  practice of combining these supplements with textbooks limits students’  ability to reduce their costs by purchasing less expensive used books and  choosing which, if any, supplements they want to purchase. Retailers told  us that when bundling started becoming more common, it became difficult  for them to obtain supplements separately from publishers to provide  students the option of buying a used book and selected supplements.  Though publishers say that most supplements are now available  separately, retailers said that because publishers often discount bundles,  most of the savings students could expect from purchasing a used  textbook would be negated if they bought the supplements separately. For  example, a new book may be bundled with an access code to a companion  Web site at no additional cost to the student. Students who choose to buy  a less expensive used textbook will have to purchase the access code  separately, but the combined cost of the used book and the access code  will be similar to the price of the new course materials sold in a bundle.  One retailer also noted that publishers assign every product a unique  identification number, whether sold individually or bundled. Because the  identification number for a bundle varies based on the specific  combination of materials included in the package, the retailer told us it  can be difficult to identify the individual components in the bundle to  order them separately from publishers or, when available, through the  used textbook market. Publishers note, however, that the standard  industry practice of assigning each bundle a unique identification number  is intended to make it easy for students, retailers, and wholesalers to  obtain a complete description of the bundle’s contents by entering the  identification number online.
Publishers told us that textbook sales representatives work to identify  materials that will best meet a given instructor’s needs and generally  bundle course materials with the textbook when the instructor desires it.  However, retailers said that instructors are often unaware that the course  materials they selected will come bundled, based on routine follow-up  discussions that stores have had with instructors. Retailers told us that  many instructors want the supplements to be available for their students  but also want students to have the option of buying a used book. However,  some publishers say that the discounts available on bundles are a selling  point with instructors, along with the assurance that students will  purchase the correct course materials.
While publishers typically allow retailers to return new textbooks that are  not sold without penalty if the textbooks are in new condition, when  course materials are bundled together they can be returned only if the seal  is unbroken. Retailers explained that their stores offer generous return  policies to accommodate students who, for example, buy the wrong  course materials or drop a course. If a student has broken the seal of the  bundle, retailers say they will not be able to return the materials to the  publisher for a refund. One retailer told us that its stores will generally  accept returns of unsealed bundles to minimize ill will with students but  that they would have to absorb the return as a loss.
Some publishers acknowledged that there has been resistance to the  practice of bundling, and some told us they are now more carefully  considering when bundling may be appropriate. While the practice is  designed to provide students with greater value, publishers understand  that students must perceive that value for a bundle to sell. Publishers say  they are also beginning to understand that as students may be sensitive to  high prices, they must strike a balance between quality and price. For  example, one publisher provided an example of a bundle that did not sell  well because the number of components increased the price beyond what  students were willing to pay. While the publisher knew that the textbook  and the individual components would retail separately for much more,  students perceived the price as too high. Publishers also told us that  bundling is most effective when instructors make use of all the materials  included in the bundle and stress their importance to students. Publishers  understand that when students spend money for course materials that are  never used they may perceive the purchase as unnecessary.

			Concerns about the Frequency of Revisions

Industry representatives and some public interest groups also suggested  that publishers are revising textbooks more frequently, and some  expressed concern about the financial impact revisions have on students.  Retailers and wholesalers told us that because instructors typically use the  most current edition of textbooks in their courses, the previous edition  becomes obsolete once a new edition is released. Once retailers and  wholesalers learn of a pending new edition, typically several months in  advance of the release date, they said the buyback value drops rapidly to  zero. Once a new edition is released, retailers say they generally cannot  buy back an old edition from students, a practice that helps students  reduce their costs.
Publishers agreed that the revision cycle for many books has accelerated  over time, but most said that it has been stable in recent years. While  textbook revision cycles can vary based on several factors, such as the  level of the course and the discipline, publishers told us that textbooks are  generally revised every 3 to 4 years, compared with cycles of 4 to 5 years  that were standard 10 to 20 years ago. Publishers say that the revision  cycle is driven by instructors who want the most current material and may  seek products from competitors if they are unable to meet the demand.  Publishers cited a recent poll of 1,029 college professors commissioned by  the Association of American Publishers that found that 80 percent of those  polled think it is important that the material in the textbook be as current  as possible. However, this may not be universal across disciplines. For  example, over 700 mathematics and physics instructors from 150  universities across the country have petitioned one publisher to delay  revisions until there have been substantial changes in content or teaching  methods that merit revision.
Publishers noted that while not every revision results in substantial  content changes, revisions must also be made for other reasons, such as  changing teaching methods. For example, one publisher cited a teaching  approach from the 1980s that has regained popularity in calculus.  Revisions may be based on current events, such as including recent  accounting scandals in textbooks for business law and ethics courses, or  recent elections in political science textbooks. Publishers told us that  changes in industry standards that are relevant to a discipline may also  necessitate out-of-cycle revisions or updates, such as pronouncements  issued by the Financial Accounting Standards Board for accounting  textbooks.
Some wholesalers and retailers think that the revision cycle for some  textbooks has the effect of limiting the used market. For example, retailers  and wholesalers have observed that books for introductory-level classes  are on a shorter revision cycle than other books, possibly because there is  a greater supply of used books, as students are less likely to keep them.  One publisher we talked to said that books for introductory classes are  typically revised more frequently because demand for current content and  technology applications is greater in these courses. Most publishers  maintain that their decisions to revise a book are based on factors other  than sales patterns. However, one publisher we spoke with said that the  current revision cycle at the company is tied to the pattern of sales  revenues, which all publishers agreed decline the longer the textbook is on  the market and more used copies become available. Publishers estimated  that in the second year of an edition they might sell 25 percent to 70  percent of the textbooks that were sold in the first year, depending on  level and discipline. Moreover, publishers say that they count on textbook  revisions to recoup the initial investment costs of developing the textbook.  They told us that first-edition textbooks are highly risky and that only  about 20 to 30 percent of their first-edition textbooks are ever revised.  However, they said that they are willing to take on this risk based on the  long-term rewards they expect to receive from successful textbooks that  are revised.

			Concerns about Other Publisher Practices

Wholesalers, retailers, and some public interest groups have also raised  concerns about other publisher practices that may limit students’ ability to  purchase used textbooks, such as custom publishing, which allows  instructors to customize their course materials by adding or deleting  chapters from a single textbook or multiple textbooks. According to  publishers, technological advances have made the practice more cost- effective and the adoption of custom materials has been increasing.  Publishers say that custom publishing appeals to instructors because it  allows them to consolidate material from multiple sources into one  textbook for their students. Publishers also think it provides students with  good value because instructors are more likely to use all of the material  they select. Because the price of custom publishing is based on the  content, the price of custom textbooks may be lower than for a traditional  textbook, according to publishers. For example, students might pay less  for one custom textbook than they would for several books the instructor  might have required if customization was not available. Some publishers  also observed that sales of custom materials tend to be better because  instructors are committed to using all of the material, and there is no  national used textbook market for them.
Retailers and wholesalers said that because there is no resale market for a  given custom textbook outside the campus where it was originally used,  students may lose out on the ability to save money by buying used books  and selling them back at the end of the term. One retailer expressed  particular concern about a few specific instances in which textbook  covers had been customized with the mascot or logo of a specific  institution, but the content of the textbook was the same. Because these  textbooks are designed for a specific campus and have a unique  identification number, there is no national used market for them. In  addition, retailers say that publishers place strict return limits—typically  10 percent—on custom textbooks, even though traditional textbooks are  usually fully returnable to the publisher. As a result, retailers say that they  have to carefully balance their commitment to carrying an adequate supply  of custom materials for students against the risk of exceeding the return  limit if they do not sell enough copies.
Wholesalers, retailers, and others are also concerned about the long-term  cost implications for students that may result from publisher practices to  provide lower-cost alternatives to the traditional textbook. Among these  alternatives are loose-leaf textbooks that are designed to be placed in a  binder and electronic textbooks that are available for purchase online.  While these options may save students money initially, wholesalers and  retailers are concerned about the long-term cost implications for students.  For example, students may initially pay less for a loose-leaf textbook than  they would for a textbook that is bound, but wholesalers and retailers said  students would be unable to sell a loose-leaf book back because it is not  possible to determine whether all the pages are intact. With electronic  textbooks, students may pay about half of the price of a new textbook for  password-protected access to an online version of the textbook. Until the  password expires, students can access the textbook as many times as they  wish, either reviewing the chapters online or printing a hard copy. Some  public interest groups initially embraced the idea of electronic textbooks  but now point out that students may run into technical difficulties if they  have to rely on Internet access. Additionally, because access to the  textbook may expire, students may not have the option at the end of the  term to keep the textbook. According to publishers, electronic textbooks  have not caught on with students, and sales of these products have been  unsuccessful.

	The Price of U.S. Textbooks Sold in Other Countries Varies according to Local Market Conditions

College textbook prices in the United States may exceed prices in other  countries because textbook publishers assign prices that reflect the  market conditions found in each country. The demand for textbooks can  vary across countries because of, for example, differences in income levels  or in the classroom role of textbooks. Publishers typically incur  substantial costs in order to develop textbooks, but once these  development costs have been undertaken, the additional cost of producing  more copies is quite low. As a result, a publisher may be able to profitably  sell textbooks in one country at prices that are closer to actual costs of  printing and distributing additional copies while charging higher prices in  the United States that reflect the substantial development costs  undertaken. Two factors are typically cited as enabling a seller, such as a  publisher, to profitably charge different prices to different buyers, such as  textbook buyers in different countries. The seller must be able to  distinguish among groups with differences in their willingness and ability  to pay a given price, and the ability for these groups to buy and sell among  one another must be restricted. Traditionally, the geographical separation  of markets has made it difficult for U.S. students to acquire lower-priced  textbooks from other countries. More recent developments in Internet  commerce have reduced the costs for buyers in the United States to  acquire textbooks from other countries, causing publishers to reexamine  their distribution arrangements.

		Varying Local Market Conditions and Barriers to Importation Help Explain Textbook Price Differences between the United States and Other Countries

Textbook publishers told us that college textbooks are developed  primarily for sale in the United States, based on cost considerations and  demand forecasts for the North American market, but that they sell  textbooks in other markets when there is international demand.  Textbooks developed for certain academic disciplines are more likely to  have broader international appeal than others, according to publishers.  For example, the content found in many mathematics, science, and  engineering textbooks is essentially global in its applicability. However,  the content found in textbooks used in other disciplines, such as political  science, may pertain much more specifically to U.S. experiences,  institutions, or culture. If international demand for a textbook exists,  publishers may sell the same textbook that is sold in the United States, an  international edition produced with less expensive materials, or an  adaptation of the textbook that includes locally relevant examples. In  international markets where the primary language spoken is not English,  publishers may sell the rights to translate the textbook into the local  language.
In assigning prices to the different versions of U.S. textbooks sold in the  international marketplace, publishers told us that they consider local  market conditions and the willingness and ability of students to purchase  the textbook. As there can be significant intercountry differences in the  demand for textbooks, publishers told us that they make country-by- country and book-by-book distribution and pricing decisions. Specifically,  publishers told us that factors they consider in making pricing decisions  are income levels, the cost of living, the role of the textbook in the  classroom, intellectual property protections, the strength of the local  currency, and the prices of competing textbooks sold in that marketplace.  In some cases, international prices may be substantially lower than prices  at which the textbook is sold in the United States, while in other cases,  they may be the same as or higher than U.S. prices. For example,  publishers told us that in many developing countries, incomes are  generally too low for students to buy textbooks at U.S. prices. However, in  areas where the cost of living is generally higher than in the United States,  such as in Scandinavian countries, textbook prices may be higher.
Publishers told us that they have to be particularly concerned about  pricing at a level that is affordable to students in developing countries  because of the threat of piracy in these countries. Although they already  grapple with piracy in many of these markets, publishers say that even  fewer legitimate copies would be sold in these markets if prices were too  high. According to publishers, some countries do not have a strong  commitment to intellectual property protections, but governments have  been more responsive in dealing with piracy cases when textbooks are  priced at a level that local students can afford.
In addition to income levels, differences in instructional styles and  systems of higher education influence publishers’ pricing decisions. For  example, publishers told us that even though average income levels are  high in the United Kingdom, textbooks tend to sell for lower prices than in  the United States because the demand for textbooks is lower. Specifically,  they said that instructors in the United Kingdom are more likely to  recommend several textbooks for students to consider, rather than  requiring a specific textbook. Additionally, publishers told us that there is  less demand for electronic and print supplements to support teaching and  learning in non-U.S. markets. Publishers also told us that because higher  education funding tends to be highly subsidized in the United Kingdom  and European countries, students may not be willing to pay out-of-pocket  costs for textbooks at U.S. prices. According to publishers, textbook  prices in Canada and Australia tend to be similar to those in the United  States because the instructional styles are similar in that instructors select  specific textbooks for their classes. However, publishers noted that in  these markets there is also greater demand for U.S. textbooks that have  been adapted to the local culture or economy.
The National Association of College Stores has criticized the practice of  differential pricing, or the publisher practice of charging lower prices in  some countries, saying that it is unfair for U.S. students to pay more for  the same textbooks. However, the practice of differential pricing is not  exclusive to textbook publishing and occurs both within and outside the  United States. For example, GAO has reported on differential pricing in  the airline industry, where business travelers typically pay much higher  fares than leisure travelers. Likewise, we have reported on differential  pricing of prescription drugs in the pharmaceutical industry. Publishers  can afford to sell textbooks at prices that are sometimes lower outside the  United States because once development costs have been incurred for the  U.S. market, the incremental cost of producing additional copies for the  international market is low. This allows publishers to sell textbooks in  other countries at prices that are closer to printing and distribution costs  while charging prices in the United States that better reflect the high costs  of development. The publishers we talked to estimated that international  sales make up from 5 to 15 percent of their total revenues. Some  publishers speculated that without the added revenues from international  sales, they would feel more cost pressure and would have to either  increase U.S. prices or invest less in certain products.
In order for international pricing differences to persist, there must be  barriers that limit mass importation of less expensive U.S. textbooks from  other countries. Such barriers ensure that individuals and businesses  purchase from the intended distribution channels and insulate students  from awareness of price differences in other countries. Historically, the  geographic separation of countries served as a natural barrier preventing  such trade from occurring. Geographic distances and lack of information  made it difficult for individuals or businesses in the United States to save  money on textbooks by purchasing lower-priced textbooks in other  countries and having them shipped to the United States, a practice  commonly referred to as reimportation. However, recent technological  developments in electronic commerce have diminished the effects of this  natural barrier, increasing awareness of prices in other countries and  making it easier for students and retailers to purchase lower-priced  textbooks from international markets.

		Publishers Have Taken Recent Steps to Limit the Reentry of Their Textbooks into the U.S. Market

Retailers and publishers have expressed concern about the reimportation  of lower-priced textbooks from international locations. Specifically, they  cited the ability students have to purchase books from online distribution  channels outside the United States at lower prices, which may result in a  loss of sales for U.S. retailers. Additionally, the availability of lower-priced  textbooks through these channels has heightened distrust and frustration  among students regarding textbook prices, and college stores find it  difficult to explain why their textbook prices are higher, according to the  National Association of College Stores. Retailers and publishers have also  been concerned that some U.S. retailers may have engaged in  reimportation on a large scale by ordering textbooks for entire courses at  lower prices from international distribution channels. Concerned about  the effects of differential pricing on college stores, the National  Association of College Stores has called on publishers to stop the practice  of selling textbooks at lower prices outside the United States.
Publishers told us that they intend for the textbooks they distribute in  other countries to be sold for use in those countries, not for resale to the  United States, and so have taken recent actions to limit large-scale  reimportation. Most of the publishers with whom we spoke say they are  particularly concerned about the actions of foreign distributors and U.S.  retailers that may result in large-scale reimportation of textbooks. As a  result, publishers told us they have taken recent steps to limit the  reimportation of textbooks in large quantities. Specifically, publishers told  us that they have strengthened their agreements with foreign wholesalers  to prevent the large-scale sale of U.S. textbooks back to the United States.  Some publishers also said they have made an agreement with an online  retailer outside the United States to limit the number of copies of a given  textbook that can be delivered to a single U.S. address in one order.  Because these measures target large-scale reimportation of U.S. textbooks  from international sources at lower prices, they will not prevent U.S.  students from purchasing single copies of textbooks from international  sources.

	Concluding Observations

College textbook prices have risen steadily, along with tuition and fees,  and appear to have been largely driven by investments in supplements.  While price increases have resulted in increasing costs for students and  their families, they reflect a change in the characteristics of postsecondary  education. Just as teaching and learning have changed with increasing  reliance on technology, the college textbook has evolved from a stand- alone text to include a variety of ancillary products designed to enhance  the educational experience for instructors and students. By increasingly  becoming involved in the development of instructional aids, publishers are  assuming roles that have traditionally belonged to postsecondary  institutions. If publishers continue to increase these investments,  particularly in technology, the cost to produce a textbook is likely to  continue to increase in the future.
Although changes in the nature of college textbooks are evident, it is  difficult to assess the impact of these changes on students. Instructors can  now select from a much wider variety of supplements to tailor their  courses to the needs of their students, but these additional textbook  offerings may come at an increased cost to students. While textbook  prices have risen with tuition costs, these costs can vary greatly depending  on the type of institution a student is attending. Because textbooks may  represent a substantial portion of the cost of tuition and fees for students  attending some public institutions, any increase in textbook prices may  affect affordability and access disproportionately for some students.  Consequently, while students may benefit from the advances in textbook  supplements, they may not feel the price increases are justified relative to  what they spend on tuition. Students may also think the amount they have  to pay for their textbooks is unfair, especially if some of the same  textbooks are available at lower prices outside the United States.
Because the cost to students may not be the primary factor considered  when publishers are developing textbooks that students are ultimately  required to buy, the rate of textbook price increases is not likely to slow.  Students may lower their costs by purchasing used textbooks and may  search for lower-priced textbooks from online sources, including  international retailers, and directly from other students. However, these  options are unlikely to provide a sustainable source of lower prices  because the supply of these textbooks is limited and international prices  are subject to change. In addition, because publishers, wholesalers, and  many retailers are profit-seeking firms, any widespread action that would  lower costs to students at the expense of profits would be met with  changes in their business practices, such as changing distribution patterns.

	Agency Comments

We provided copies of a draft of this report to the Department of Labor  and the Department of Education for review and comment. The  Department of Labor provided technical comments on the use of its CPI  data, which we incorporated as appropriate. The Department of Education  did not have any comments. We also sought comments on our  characterization of the textbook industry from the National Association of  College Stores and the Association of American Publishers, the trade  groups representing the companies we interviewed for this study.
NACS generally agreed with our findings, stating that the report accurately  portrayed the textbook industry. NACS also provided technical comments  that we incorporated as appropriate. NACS’s comments appear in  appendix III.
AAP agreed with some findings in the report but expressed concern with  respect to the data sources we used in our analyses and the tone and  objectivity of the report.
With respect to the data sources we used, AAP expressed concern about  the limitations of the data we used in determining textbook price increases  over time, and the proportion of tuition and fees that spending on  textbooks and supplies represent for students at different types of  postsecondary institutions. AAP also suggested alternative data sources  for addressing these issues, but we found that they were not sufficiently  reliable for our purposes.
While AAP disagreed with our use of CPI data from BLS, these are the  most complete and reliable data on textbook prices available. Further, we  clearly disclose the limitations and definitions of the CPI data in the  report. AAP’s claim that BLS data do not capture the “penetration of  lower-cost alternatives” is not accurate. The college textbooks CPI is an  index designed to capture the prices of assigned textbooks. To the extent  that lower cost alternatives are assigned, they would be fully reflected in  BLS’s index. AAP also suggested that the availability of alternative data  from Student Monitor that differ substantially from the BLS data call into  question our decision to use BLS data as a sole source.  We disagree  because the two data sources are not comparable. Student Monitor data  are measuring annual changes in student spending, while BLS data  measure annual price changes.
AAP also expressed concerns about the use of Education’s IPEDS data, in  particular that estimates are for textbooks and supplies and that we did  not validate the estimates postsecondary institutions provided. We use  IPEDS data because they are the most complete data available on  estimated student spending.  As we state in appendix I, we tested IPEDS  for reliability and note that other available data sources are not as  complete or reliable.  AAP also questions the appropriateness of  measuring estimated spending on textbooks and supplies as a percentage  of tuition. We present these data to provide perspective on college  affordability—a primary federal policy concern. To address AAP’s  concerns about what constitutes supplies, we have noted in appendix I  that supplies are defined as usual costs incurred by a majority of students.   AAP also expressed concern that in discussing estimates of student  spending on textbooks, we did not take into account the extent to which  students lower their costs through buyback. We have added this context  where we discuss costs to students.
AAP also provided additional data sources for consideration and  expressed concern that deadlines prevented us from giving these sources  appropriate consideration. We considered other sources available that  provide estimates of student spending. Time was not a factor in our  decision not to use the data, but rather we found these sources to be not  as complete or as reliable as the IPEDS data. Student Monitor, one of the  sources suggested by AAP, provides market research for those targeting  college students as a consumer group. Student Monitor employs a  nonprobabilistic sampling methodology using an intercept-based quota  sample of 1,200 students covering 100 colleges and universities. Because  of the sample selection process used, it cannot be used to estimate to the  college student population as a whole for the purpose of addressing a key  finding. Other industry sources AAP suggested provide estimates on the  total size of the market, but they cannot be used to provide representative  estimates on student spending for textbooks.
AAP expressed concern about the tone and objectivity of the report,  particularly the characterizations of retailers and wholesalers on the  impact of publisher practices on students. In most instances we had  already discussed issues raised by AAP in other sections of our report.   AAP took issue with comments made by wholesalers and retailers  regarding the impact of textbook revisions, bundling, and custom  publishing on students’ ability to pursue lower-cost, used textbooks.  We  specifically provide information on the views of wholesalers and retailers  to add balance and include more perspectives in our report.  We provide  publisher perspectives on why they revise textbooks and characterize why  and how the revision cycle has changed over the last two decades.  We  also extensively discuss in our report publisher perspectives on  supplements, bundling, and other options, such as custom publishing,  while capturing publisher views regarding their benefits.  Wholesalers and  retailers provided a different perspective on these practices as they relate  to potential costs to students, which we captured in our report.
More generally, GAO’s approach to this study was to rely primarily on  publishers to provide information on how they price textbooks and gain  their perspectives on the factors that influence price changes. We also  sought out other experts in the field, including retailers and wholesalers,  to better understand how students obtain textbooks and what factors  affect the cost to the student. Retailers and wholesalers did not place  blame on publishers but pointed out the impact of some publisher  practices on students. We do not place any blame in our report on the  publishers and do in fact note that they offer a variety of options for  students, sometimes at a discount. We also note in our report that faculty  have primary responsibility for determining what students are required to  buy.
AAP stated in its letter that it agreed with the findings related to  international price differences and the report’s concluding observations.   AAP also provided technical comments, which we incorporated as  appropriate. AAP’s comments appear in appendix IV.
As arranged with your offices, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days from its  issue date. At that time, we will send copies of this report to the  congressional committees and subcommittees responsible for the Higher  Education Act, the Secretary of Education, the Secretary of Labor, and  other interested parties. Copies will also be made available to others upon  request. In addition, this report will be available at no charge on GAO’s  Web site at http://www.gao.gov.
If you have any questions about this report, please contact me on (202)  512-7215. Key contributors to this report are listed in appendix IV.

Appendix I: Objectives, Scope, and Methodology

To determine the extent to which textbook prices have changed over time,  we reviewed college textbook pricing data from the Bureau of Labor  Statistics’ Consumer Price Index (CPI). The CPI measures the average  change over time in the prices paid by urban consumers for consumer  goods and services, and in the case of textbooks represents an index of  change over time of the retail price of college textbooks, or the price that  students and their families pay. While college textbooks have been  included in the CPI since 1964, data on textbooks in the Bureau of Labor  Statistics’ (BLS) research database only go back to 1986, when BLS  collected textbook prices as part of an index on the price of books and  supplies.  The agency began publishing a separate CPI series on textbooks  in 2001. Using these data, BLS constructed an unpublished research series  on college textbooks for GAO for the period of December 1986 through  December 2004. The index was compiled from three separate index series,  as outlined in table 2. The implications on the index of these differences in  methodology are discussed below.
The college textbook CPI is constructed using a probability-based  selection process that identifies bookstores as well as textbooks that are  assigned for use in courses of higher education. Prices for specific books  are taken from a variety of bookstores located on and off campus, as well  as from Web-based retailers, reflecting prices at public and private  postsecondary institutions, including 2-year, 4-year, graduate, and  professional schools. The sample composition changes each year for the  following reasons: (1) books assigned to classes change over time,   (2) some books cycle out of circulation, and (3) a quarter of the sample  rotates out annually. Similarly, the sample size for this research series  varies over time as sampling procedures are modified and may range from  200 to 500 price quotes. This variation in sample size does not affect the  value of the index, though fewer observations may affect the variance of  the index. Overall, BLS reports that the response rate for college textbook  CPI data collection is very high, 88 percent.
Most of the textbooks included in the sample are designated as required  texts for courses offered by the college or university associated with each  sampled bookstore. In some cases, the selected textbook may not be  available for pricing because the course has been terminated, the course  requires a different textbook, or the course is not offered every term. In  instances in which the course is no longer offered and the textbook is not  used in any other course, then the assigned textbook for a similar course  is selected as a substitute. If the textbook is no longer used for the  selected course, it is replaced with the textbook that is currently used for  the selected course. If the book is temporarily out of use (for example, the  course associated with the book is offered only in the fall semester), then  the book is listed as temporarily not available and the price change is  imputed based on the price changes of the other books.
An important limitation to this research series is that prior to 2001, prices  for such substitute books were not usually compared and no adjustments  were made for any qualitative changes between the previous and  substitute books. With the introduction of quality adjustment in 2001, the  index is adjusted when certain characteristics of a textbook change, such  as a move from a major to a smaller publisher or a considerable change in  the number of pages. If the new version of the textbook contains  substantially different characteristics and quality adjustment values are  not available, the price movement is imputed based on the prices of  comparable textbooks. Because hedonic quality adjustment is  implemented only for the published portion of the research series, for the  periods before 2001, the index may have higher variance than the  published index, which begins in 2001.
In addition, BLS officials pointed out that textbooks are increasingly  wrapped in packages along with additional materials, making it difficult to  collect all of the qualitative characteristics of the textbook. If the selected  textbook is sold by itself, then only the textbook is priced. However, if the  selected textbook is automatically sold with another item, such as a CD or  workbook, then the agency must price the entire package. As a result of  these packaging practices, it is sometimes difficult for BLS to obtain the  information necessary for quality adjustment, and other times the price  recorded as the textbook price may also include ancillary materials.
To put changes in textbook prices into the context of other changes in the  cost of higher education, we also reviewed CPI data on tuition and fees,  which are constructed using a probability-based selection process and  reflect the cost of tuition and fees at 2-year and 4-year institutions and  professional schools.
We analyzed data from the Department of Education’s (Education)  Integrated Postsecondary Data System (IPEDS) to determine the  proportion of tuition and fees that expenditures for textbooks and  supplies represent. Specifically, postsecondary institutions estimate the  amount first-time, full-time, degree-seeking students will spend for an  entire academic year on textbooks and supplies and report on the amount  of tuition and fees. IPEDS defines books and supplies as the average cost  of books and supplies for a typical student for an entire academic year (or  program). Supplies are to include usual costs that are incurred by a  majority of students. Supplies required of special groups of students, such  as engineering or art majors, would not be counted unless they constituted  a majority of students at the institution.  The Department of Education has  not established a comprehensive definition of what supplies are.   However, an Education official told us that supplies can include such  things as allowances for personal computers, but such expenses should be  reported only if they are required for a majority of students at the  institution.
To assess the completeness of the IPEDS data, we reviewed the National  Center for Education Statistics’ documentation on how the data were  collected and performed electronic tests to look for missing or out-of- range values. On the basis of these reviews and tests, we found the data  sufficiently reliable for our purposes. We did not validate the methodology  the institutions used to derive their estimates for the cost of books and  supplies, and there has been no review of how well these institutional  estimates actually predict student spending on textbooks and supplies.
There are other sources available that provide estimates of student  spending on college textbooks that we considered, but we did not find  these sources to be as complete or reliable as IPEDS.  The College Board  collects estimates from postsecondary institutions on spending for books  and supplies for full-time undergraduate students as part of its Annual  Survey of Colleges.  While the methodology employed was similar to that  used for IPEDS, the survey included responses from a smaller population  of institutions than IPEDS.  Another source, Student Monitor, estimates  spending on college textbooks based on student-reported expenditures.  Student Monitor provides market research for those targeting college  students as a consumer group.  Student Monitor employs a  nonprobabilistic sampling methodology using an intercept-based quota  sample of 1,200 students covering 100 colleges and universities. Because  of the sample selection process used, it cannot be used to estimate to the  college student population as a whole for the purpose of addressing a key  finding.
To determine what factors have contributed to the change in college  textbook prices, we interviewed executives from five of the largest  textbook publishers, representing more than 80 percent of new textbook  sales; the three national used textbook wholesalers; three companies that  operate over 1,300 college textbook retail stores, or 29 percent of stores  nationwide; the National Association of College Stores; the Association of  American Publishers; and various other industry experts.
To determine what factors have led to differences in the price of some U.S.  textbooks in non-U.S. markets, we conducted a review of economic theory  and relevant GAO work on differential pricing. We interviewed  representatives from textbook publishers, operators of textbook retail  stores, and used book wholesalers to determine the extent to which books  may be available in other countries at lower prices, their analysis of the  reasons behind these price discrepancies, and their concerns about pricing  differences.

Appendix II: Consumer Price Index Average Annual Percentage Growth, Academic Years 1987-1988 to 2003-2004

CPI average annual percent increase  Academic year 1987-1988 shows the growth in prices over the previous academic year, 1986-1987.  Data for the 1986-1987 estimate lack the months of September through November, as data became  available in December of 1986. As a result, the average price level in 1986-1987 is based on   9 months of data rather than 12.

Appendix III: Comments from the National Association of College Stores

Appendix IV: Comments from the Association of American Publishers

Appendix V: GAO Contact and Staff Acknowledgments

	GAO Contact

	Staff Acknowledgments

Bryon Gordon, Assistant Director  Debra Prescott, Analyst-in-Charge  Whitney Schott, Analyst  In addition to those named above, Stephen Brown, Jonathan McMurray,  and John Mingus made significant contributions to this report.

Summary:
Why GAO Did This Study

The federal government strives to make postsecondary education accessible and affordable, primarily by providing financial aid to students and their families. Given that nearly half of undergraduates receive federal financial aid, Congress is interested in the overall cost of attendance, including the cost of textbooks. We were asked to determine (1) what has been the change in textbook prices, (2) what factors have contributed to changes in textbook prices, and (3) what factors explain why a given U.S. textbook may retail outside the United States for a different price. We received technical comments from the Department of Labor. The Department of Education had no comments. The National Association of College Stores generally agreed with the report's findings. The Association of American Publishers agreed with some findings but expressed concern about the data sources we used and the characterizations made by retailers and wholesalers regarding the impact of publisher practices on students. We carefully reviewed the data sources available on college textbook pricing and found the data we used to be the most complete and reliable data available for our purposes. Additionally, we sought perspectives from publishers, retailers, and used book wholesalers to ensure our characterization of the textbook industry was balanced and complete.

What GAO Found

In the last two decades, college textbook prices have increased at twice the rate of inflation but have followed close behind tuition increases. Increasing at an average of 6 percent per year, textbook prices nearly tripled from December 1986 to December 2004, while tuition and fees increased by 240 percent and overall inflation was 72 percent. The cost of textbooks as well as supplies as a percentage of tuition and fees varies for first-time, full-time, degree-seeking students by the type of institution attended--72 percent at 2-year public institutions, 26 percent at 4-year public institutions, and 8 percent for 4-year private institutions. While many factors affect textbook pricing, the increasing costs associated with developing products designed to accompany textbooks, such as CD-ROMs and other instructional supplements, best explain price increases in recent years. Publishers say they have increased investments in developing supplements in response to demand from instructors. Wholesalers, retailers, and others expressed concern that the proliferation of supplements and more frequent revisions might unnecessarily increase costs to students. U.S. college textbook prices may exceed prices in other countries because prices reflect market conditions found in each country, such as the willingness and ability of students to purchase the textbook. While geographical barriers have historically limited the reentry of textbooks intended for international distribution back into the United States, known as reimportation, recent advances in electronic commerce have broken down this barrier. In response to concerns that the international availability of less expensive textbooks might negatively affect textbook sales, publishers have taken steps to limit large-scale textbook reimportation.