Henry at Crooked Timber asks "Why are textbooks so expensive", and gives an answer which even at this early hour of the day seems odd to me: "It’s not so expensive because there’s low demand - every graduate student in international relations has to read it."
Ummm ... if there was low demand, for any given supply curve, the market clearing price would surely be lower. The explanation probably has to do with demand being inelastic, owing to there being no substitutes for the good in question. Not to mention that sometimes the suppliers (authors) can screw with the demand curve by assigning the book in their own courses, or getting their friends to do so. That kind of interaction is definitely not covered in the perfect competition models you get in stage 1 textbooks.
UPDATE obviously early in the day for me ... Commenters point out that (1) there are high fixed costs in book publishing (true), and (2) that there is high demand which should take us along the [discontinuous] supply curve to a point where the average and marginal costs are lower.
I think inelastic demand and agency problems (professors assigning textbooks) still play a role.
Posted by robe0419 at December 3, 2004 10:11 AM | TrackBackThe expression "for any given supply curve" is leading you astray here. Continuous, well-behaved supply curves basically don't exist outside introductory microeconomics textbooks. Particularly, for book publishing there is a whacking great discontinuity in the supply curve which relates to the fixed cost of typesetting and making the plates. Hence, small print runs have extremely high unit cost, and low demand is associated with high prices.
Posted by: dsquared at December 3, 2004 10:21 AMI think you misread Henry:
"It’s not so expensive because there’s low demand - every graduate student in international relations has to read it."
He means:
It’s not (so expensive because there’s low demand)
I.e., he's pointing out that there is high demand for the books, and thus rejecting the hypothesis "low demand is resulting higher prices for these books".
As the other poster noted, the hypothesis would be true if in fact there were low demand, because in book publishing there are high fixed costs for publishing a single copy; the marginal cost of an additional copy is much lower, and continues to decline rapidly.
Posted by: Silent E at December 3, 2004 10:52 AMI would politely suggest to Henry that the sets "every graduate student in international relations" and "low demand" are not mutually exclusive. Given the high fixed costs noted by Silent E, the pricing is not out of line.
Especially if one considers that undergraduate textbooks--with a MUCH larger market--are priced similarly.
Posted by: Ken Houghton at December 3, 2004 12:06 PM