Competition in the retail college textbook market
Section snippets
The retail college textbook market
Retail college textbook markets provide an effective arena to study the relationship between price and market concentration. First, retail textbook markets are confined geographically by their proximity to classrooms and residence halls of a college or university campus. Students rarely have realistic alternatives to buying their books from campus area retailers because they seldom learn which books are required until they are needed, college and university textbooks are rarely stocked by
The relationship between price and concentration
The widespread (but not unanimous) agreement among economists that profit margins rise as the number of sellers declines often evaporates in the interpretation of this empirical regularity. The sharpest lines have been drawn between those who interpret the relationship as evidence of the exploitation of market power, and those who contend that the relationship demonstrates the greater efficiency of firms that earn large market shares, leading to market concentration.
Why and how prices depend on the number of sellers
Numerous profit-maximizing oligopoly theories predict an inverse relationship between price and the number of sellers. The theory of monopoly pricing predicts that equilibrium profit-maximizing price falls with increasing firm-specific elasticity of demand. Elasticity increases, ceteris paribus, as the number of sellers grows. A generalization of Cournot's (Cournot, 1897) duopoly theory also predicts that equilibrium industry price varies inversely with the number of sellers. In contrast to
Data and specification
We regress on-campus bookstore textbook prices on a common set of variables designed to control for differences in costs, entry conditions, and bookstore goals across differing sets of colleges and universities. Two specifications of seller competition are used for each of 16 new and 16 used textbooks in order to distinguish a continuous from a discontinuous effect of the number of sellers on price. Individual college on-campus bookstores are our unit of observation. The price of each book is
Empirical results
An example of the empirical results, for Campbell McConnell and Stanley Brue's Economics, is reported in Table 3. There is little support for the profit-maximizing model in which costs, entry conditions, and the number of sellers affect price levels. The third and fourth columns of Table 3 report the estimates for new and used copies of Economics, respectively, when the inverse of the number of book sellers is used to measure the number and size distribution of sellers. The fifth and sixth
Conclusions
We find no evidence to support the proposition that retail college textbook prices are higher in markets where costs are higher or where the on-campus bookstore faces fewer existing or potential competitors. This finding suggests that either oligopolistic competition is insufficient to affect price levels, or the profit-maximizing model is not apt for describing pricing behavior in the retail college textbook market.
There are also several other possibilities that should be considered. First,
Acknowledgements
Some of the data for this article were taken from a research project on the operation of college and university auxiliaries funded jointly by the National Association of College and University Business Officers, the College Bookstore Foundation, and Vanderbilt University. We would like to thank especially the various college bookstore personnel who responded to our request for price information. We received helpful advice from John Turk, Manager of the Vanderbilt University Bookstore. Hao Zhang
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