Ask any student and they will say that college textbooks are expensive.Having worked in the textbook industry for many years, I am familiar with the used textbook market, sell through of books in the college store, and all the stories about how students try to save money through various actions. As an economist, I wanted to know the price elasticity of the textbook. Elasticity is defined as the coefficient that relates a percentage change in units consumed to a percentage change in price.
This is not a straight forward calculation. As consumers, students would purchase no more than one particular textbook so a change in the price would not impact their decision to buy or not to buy. Also, books are for the most part, priced the same across the entire college market. How then do you calculate elasticity?
Consider a bookstore. In any particular year they will have a certain sales volume in units driven primarily by the enrollment on campus. Last year’s sales are a good indication of what next year’s will be. On the other hand, the quantity of used books available does change from year to year. The percentage of used books in the mix is a surrogate for pricing a student’s basket of textbooks.
Looking at a cross section of college bookstores, one can construct an estimate of units sold based on the units sold in the previous year and the relative price from the mixture of used and new titles.
As expected the biggest factor in the units sold is the units sold in the previous year. However, there is a statistically significant value for the coefficient of relative price, our measure of elasticity.
That number is -0.6 or a one-percent increase in price will result in a 0.6% decrease in units sold. Textbooks are very elastic. Unfortunately for the student, the number of used books is most ofter limited.
There is a vicious circle here, as publishers try to reduce the number of used books by bring out new, more elaborate editions at a higher price, there is more demand for used or less expensive alternatives. Electronic materials won’t kill the textbook, it’s too busy committing suicide.
Textbook Short-term Elasticity = -0.6
Now ask your self about the calculation of Long-term Elasticity.