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.
According to my Econ textbook, if the coefficient is less than one, that means the demand is inelastic, however, you state that it is elastic. -0.2 is less than one, so therefor shouldn’t the demand be inelastic? I am writing a paper fr Econ and I am trying to find the elasticity coefficient for textbooks. Could you explain why you say it is an elastic demand when the coefficient is less than one?
Thank you
First of all the number is -0.6,not -0.2 and that’s a big difference, but you are absolutely correct when your say that a magnitude less than unity is inelastic, or relatively inelastic. We should, however, add “for most goods.”
What is the alternative to buying a new or used textbook? That was the question we were studying when the study was conducted. We were interested in the impact of having more used books in the mix, whether a rental program would be worthwhile, and ultimately were we shrinking in size and where and how big was the alternative to purchasing a “required” product.
The value of -0.6 was statistically significant by a wide margin, and for the companies running physical bookstores with a mix of new and used an enlightening number. As an aside, the total shrinkage we were facing was on the order of one-half a unit per full-time student per year over a period of several years. Much of the leakage was explained, but as far as I know the -0.6 result still holds.
Also, it is important to remember that -0.6 is the SHORT-term elasticity, i.e. the one year to the next. Since there is a high correlation of units from one year to the next, the LONG-term elasticity is much, much higher and well above the -1.0 cutoff level. Long term elasticity is determined by (Short Term Elasticity) / [ 1 – (Auto Correlation of Volume) ]. The auto correlation factor often exceeds 0.5, which means twice the value of Long to Short, or -1.2 for the textbook.
Thank you for your comment. I’ve approved it so it will remain on the site along with this response.
That’s why professors keep insisting on the newest edition of textbooks, ouch.
I have learned from my associates that the used book – new book battle between publishers and wholesalers has reached an equilibrium, i.e. the number of units new or used to the total number of physical units has stabilized. The big question now is whether eBooks will start to eat away at the physical unit sales in a significant manner. If you believe my analysis of increased risk for eBooks (high fixed costs, low marginal costs), then we might see some real changes in the market place with site licensing in the HigherEd market, similar to what is happening in the Elhi market.