Textbook arbitrage

How’s this for a foolish celebration of conspicuous consumption?

Mr. Sarkis said [Williams College’s] campus bookstore made the high costs [of textbooks] all too visible. “They really rubbed it in,” he said. “If you were the highest spender of the day, they’d ring this little bell and say they had a new winner, and give you a lollipop. I got the lollipop twice.”

The unwanted recognition backfired on the campus bookstore because Sarkis and another student were motivated to set up in competition against it. They now import textbooks from overseas and sell them to American students for much less than the US market price.

What a role reversal that is! I have lived most of my life in countries that envy America’s standard of living. Canadians are always complaining that their taxes are unreasonably higher than those in the United States, and in both Britain and Canada many consumer goods are known to be more expensive than in the US. Now, thanks to the Internet, American students are discovering what it feels like to pay more than others (see Students Find $100 Textbooks Cost $50, Purchased Overseas in The New York Times).

Interestingly, the Association of American Publishers is arguing that foreign sales have to be priced according to the local market and are simply an added bonus for America’s GDP. In other words, the costs incurred in producing the book must be recouped from the domestic market (i.e. American students), after which sales of foreign editions (at very little additional cost) simply contribute to the publisher’s profit.

It’s a real shame the record companies don’t apply the same reasoning to the pricing of music CDs. Recorded music would be much cheaper in Canada and Britain if they did! In fact, why stop there? All Hollywood’s costs could be recouped in the US, and then all movies and CDs could be virtually free everywhere else. I think it’s a great idea.

More seriously, marketing specialists would have you believe that pricing is a complicated process in itself; but I’ve come to the conclusion that most businesses simply set prices as high as they can until sales start to suffer. CDs are expensive in the UK because people are simply willing to pay more for music. Similarly, textbooks are more expensive in the US because American students are relatively wealthy and are prepared to pay more than students elsewhere.

Pricing is a part of business strategy, of which the most honest description is to be found in What Management Is by Joan Magretta and Nan Stone:

Business executives are society’s leading champions of free markets and competition, words that, for them, evoke a world view and value system that rewards good ideas and hard work, and that foster innovation and meritocracy.… All the talk about the virtues of competition notwithstanding, the aim of business strategy is to move an enterprise away from perfect competition and in the direction of monopoly.

…The game may be moving faster, and the advantages may be shorter lived, but the objective is the same: figuring out how to hide from competition, or dampen it, or constrain it, so that you can earn superior returns.

No wonder American students are feeling abused. Luckily for them, however, the power is shifting. The Internet is making it harder for publishers to hide.