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