Greg Mankiw Thinks Greg Mankiw’s Textbook Is Fairly Priced

This is kind of hilarious.

Greg Mankiw has written a blog post expressing his perplexity1 with The New York Times’ position that textbooks are overpriced:

To me, this reaction seems strange. After all, the Times is a for-profit company in the business of providing information. If it really thought that some type of information (that is, textbooks) was vastly overpriced, wouldn’t the Times view this as a great business opportunity? Instead of merely editorializing, why not enter the market and offer a better product at a lower price? The Times knows how to hire writers, editors, printers, etc. There are no barriers to entry in the textbook market, and the Times starts with a pretty good brand name.

My guess is that the Times business managers would not view starting a new textbook publisher as an exceptionally profitable business opportunity, which if true only goes to undermine the premise of its editorial writers.

It’s worth noting that Mankiw received a $1.4 million advance for his economics textbook from his original publisher Harcourt Southwestern, which was later acquired by the company now known as Cengage Learning. That was in 1997. Now in its seventh edition, Mankiw has five different versions of his book published by Cengage (not counting the five versions of the previous edition, which is still on the market). That said, he is probably right that NYT would not view the textbook industry as a profitable business opportunity. But think about that. A newspaper finds the textbook industry unattractive economically. The textbook industry is imploding. Mankiw’s publisher just emerged from bankruptcy, and textbook sales are down and still dropping across the board.

One reason that textbook prices have not been responsive to market forces is that most faculty do not have strong incentives to search for less expensive textbooks and, to the contrary, have high switching costs. They have to both find an alternative that fits their curriculum and teaching approach—a non-trivial investment in itself—and then rejigger their course design to fit with the new book. A second part of the problem is that the publishers really can’t afford to lower the textbook prices at this point without speeding up their slow-motion train crash because their unit sales keep dropping as students find more creative ways to avoid buying the book. Their way of dealing with falling sales is to raise the price on each book that they sell. It’s a vicious cycle—one that could potentially be broken by the market forces that Mankiw seems so sure are providing fair pricing if only the people making the adoption decisions had motivations that were aligned with the people making the purchasing decisions. The high cost of switching for faculty, coupled with their relative personal immunity to pricing increases, translate into a barrier to entry for potential competitors looking to underbid the established players. Which brings me to the third reason. There are plenty of faculty who would like to believe that they could make money writing a textbook someday and that doing so would generate enough income to make a difference in their lives. Not all, not most, and probably not even the majority, but enough to matter. As long as faculty can potentially get compensated for sales, there will be motivation for them to see high textbook prices that they don’t have to pay themselves as “fair” or, at least, tolerable. It’s a conflict of interest. And Greg Mankiw, as a guy who’s made the big score, has the biggest conflict of interest of all and the least motivation of anyone to admit that textbook prices are out of hand, and that the textbook “market” he wants to believe in probably doesn’t even properly qualify as a market, never mind an efficient one.