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 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.