College Textbooks: Enhanced Offerings Appear to Drive Recent	 
Price Increases (29-JUL-05, GAO-05-806).			 
                                                                 
The federal government strives to make postsecondary education	 
accessible and affordable, primarily by providing financial aid  
to students and their families. Given that nearly half of	 
undergraduates receive federal financial aid, Congress is	 
interested in the overall cost of attendance, including the cost 
of textbooks. We were asked to determine (1) what has been the	 
change in textbook prices, (2) what factors have contributed to  
changes in textbook prices, and (3) what factors explain why a	 
given U.S. textbook may retail outside the United States for a	 
different price. We received technical comments from the	 
Department of Labor. The Department of Education had no comments.
The National Association of College Stores generally agreed with 
the report's findings. The Association of American Publishers	 
agreed with some findings but expressed concern about the data	 
sources we used and the characterizations made by retailers and  
wholesalers regarding the impact of publisher practices on	 
students. We carefully reviewed the data sources available on	 
college textbook pricing and found the data we used to be the	 
most complete and reliable data available for our purposes.	 
Additionally, we sought perspectives from publishers, retailers, 
and used book wholesalers to ensure our characterization of the  
textbook industry was balanced and complete.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-806 					        
    ACCNO:   A31577						        
  TITLE:     College Textbooks: Enhanced Offerings Appear to Drive    
Recent Price Increases						 
     DATE:   07/29/2005 
  SUBJECT:   Books						 
	     College students					 
	     Colleges and universities				 
	     Cost analysis					 
	     Economic analysis					 
	     Education or training costs			 
	     Higher education					 
	     Prices and pricing 				 
	     Publishing 					 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-05-806

United States Government Accountability Office

GAO

                       Report to Congressional Requesters

July 2005

COLLEGE TEXTBOOKS

           Enhanced Offerings Appear to Drive Recent Price Increases

GAO-05-806

July 2005

COLLEGE TEXTBOOKS

Enhanced Offerings Appear to Drive Recent Price Increases

[IMG]

  What GAO Found

In the last two decades, college textbook prices have increased at twice
the rate of inflation but have followed close behind tuition increases.
Increasing at an average of 6 percent per year, textbook prices nearly
tripled from December 1986 to December 2004, while tuition and fees
increased by 240 percent and overall inflation was 72 percent. The cost of
textbooks as well as supplies as a percentage of tuition and fees varies
for first-time, full-time, degree-seeking students by the type of
institution attended-72 percent at 2-year public institutions, 26 percent
at 4-year public institutions, and 8 percent for 4-year private
institutions.

Annual Percentage Increase in College Textbook Prices, College Tuition and
Fees, and Overall Price Inflation, December 1986 to December 2004

While many factors affect textbook pricing, the increasing costs
associated with developing products designed to accompany textbooks, such
as CD-ROMs and other instructional supplements, best explain price
increases in recent years. Publishers say they have increased investments
in developing supplements in response to demand from instructors.
Wholesalers, retailers, and others expressed concern that the
proliferation of supplements and more frequent revisions might
unnecessarily increase costs to students.

U.S. college textbook prices may exceed prices in other countries because
prices reflect market conditions found in each country, such as the
willingness and ability of students to purchase the textbook. While
geographical barriers have historically limited the reentry of textbooks
intended for international distribution back into the United States, known
as reimportation, recent advances in electronic commerce have broken down
this barrier. In response to concerns that the international availability
of less expensive textbooks might negatively affect textbook sales,
publishers have taken steps to limit large-scale textbook reimportation.

                 United States Government Accountability Office

Contents

  Letter

Results in Brief
Background
College Textbook Prices Have Grown at Twice the Rate of

Inflation, Trailing Annual Tuition Increases Publisher Investments in New
Products Have Contributed to Increases in Textbook Prices The Price of
U.S. Textbooks Sold in Other Countries Varies

according to Local Market Conditions Concluding Observations Agency
Comments

                                       1

                                      2 4

                                       8

11

21 25 26

Appendix I Objectives, Scope, and Methodology

Appendix II	Consumer Price Index Average Annual Percentage Growth,
Academic Years 1987-1988 to 2003-2004

Appendix III	Comments from the National Association of College Stores

Appendix IV	Comments from the Association of American Publishers

Appendix V GAO Contact and Staff Acknowledgments

  Tables

Table 1: Illustration of Typical Textbook Pricing Practice for $100
Publisher-Priced Book 13 Table 2: Source and Methodology for CPI College
Textbook Research Series Data 31

  Figures

Figure 1: The Typical Life Cycle of a College Textbook 5

Figure 2: Annual Percentage Increase in College Textbook Prices, College
Tuition and Fees, and Overall Price Inflation, December 1986 to December
2004 9

Figure 3: Estimated Cost of Textbooks and Supplies as a Percentage of
Tuition and Fees, Academic Year 2003-2004 11

Abbreviations

AAP Association of American Publishers
BLS Bureau of Labor Statistics
CPI Consumer Price Index
IPEDS Integrated Postsecondary Education Data System
NACS National Association of College Stores

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

United States Government Accountability Office Washington, DC 20548

July 29, 2005

Congressional Requesters

The federal government endeavors to improve access to and affordability of
postsecondary education, primarily by providing financial aid to students
and their families. Consequently, the overall cost of postsecondary
attendance, including components such as tuition and textbooks, is of
national importance because escalating costs can have negative effects on
access and affordability. In academic year 2003-2004, students and their
families spent over $6 billion on new and used textbooks.1 Given that
nearly half of undergraduates receive federal financial aid and the cost
of textbooks is one component considered in making these awards,
escalating textbook prices can impact federal spending. Because of the
impact on access, affordability, and federal spending, recent reports of
escalating textbook prices and instances in which publishers sell U.S.
textbooks in other countries at lower prices have heightened congressional
concern and raised questions about textbook pricing practices. You asked
us to determine (1) what has been the increase, if any, in textbook
prices? (2) what factors have contributed to changes in textbook prices?
and (3) what factors explain why a given U.S. textbook may retail outside
the United States for a different price?

To quantify the change in college textbook prices, the Department of
Labor's Bureau of Labor Statistics (BLS) constructed for GAO's use a
Consumer Price Index (CPI) data series that shows how the price of
textbooks for consumers has changed since December 1986, the earliest date
for which college textbook prices are available as part of BLS's research
index. In drawing samples to compute price indices, BLS defines a textbook
as any book required for a course, including books intended for general
readership and packages containing the textbook and related supplements
when the textbook alone has not been ordered. In order to put the price of
a textbook into context, we examined the cost of tuition and fees to
students and their families as tracked by the CPI since 1980. We also
examined data from the Department of Education's (Education) Integrated
Postsecondary Education Data System (IPEDS) to gain an

1National Association of College Stores, 2005 College Store Industry
Financial Report (Oberlin, Ohio: 2005).

understanding of the cost of textbooks and supplies (IPEDS does not
disaggregate textbooks and supplies) for first-time, full-time,
degreeseeking students during the course of an entire academic year, as
estimated by postsecondary institutions, and the portion of the total
estimated cost of tuition and fees that books and supplies represent. To
determine what factors have contributed to the change in college textbook
prices, we interviewed executives from five textbook publishers that
account for more than 80 percent of new textbook sales; the three major
national used textbook wholesalers; three companies that operate over
1,300 college textbook retail stores, or 29 percent of stores nationwide;
the National Association of College Stores; the Association of American
Publishers; the California and state Public Interest Research Groups; and
various other industry experts. To determine what factors have led to
differences in the price of some textbooks in U.S. and non-U.S. markets,
we reviewed relevant economic theory and interviewed major industry
players. Specifically, we spoke to representatives from textbook
publishers, operators of textbook retail stores, and used book wholesalers
to determine the extent to which books may be available in other countries
at lower prices, and the reasons behind these price differences. A more
detailed explanation of our methodology, including more information about
our data sources, is in appendix I. We conducted our work between November
2004 and June 2005 in accordance with generally accepted government
accounting standards.

                                Results in Brief

College textbook prices have risen at twice the rate of annual inflation
over the last two decades, following close behind annual increases in
tuition and fees at postsecondary institutions. Rising at an average of 6
percent each year since academic year 1987-1988, compared with overall
average price increases of 3 percent per year, college textbook prices
trailed tuition and fee increases, which averaged 7 percent per year.
Since December of 1986, textbook prices have nearly tripled, increasing by
186 percent, while tuition and fees increased by 240 percent and overall
prices grew by 72 percent. While increases in textbook prices have
followed increases in tuition and fees, the cost of textbooks and supplies
for degree-seeking students as a percentage of tuition and fees varies by
the type of institution attended. For example, the average estimated cost
of books and supplies per first-time, full-time student for academic year
2003-2004 was $898 at 4-year public institutions, or about 26 percent of
the cost of tuition and fees. At 2-year public institutions, where
low-income students are more likely to pursue a degree program and tuition
and fees are lower, the average estimated cost of books and supplies per
first-time,

full-time student was $886 in academic year 2003-2004, representing almost
three-quarters of the cost of tuition and fees.

While there are many factors that affect textbook pricing, the price of
textbooks has increased in recent years, according to experts we spoke
with, as a result of the increase in costs associated with new features,
such as Web sites and other instructional supplements. Other factors that
affect pricing include production costs, availability of used books, and
the demand for textbooks. Publishers say they have increased their
investments in the development of supplements to meet the demands of a
changing postsecondary market. For example, publishers we spoke with cited
increases in part-time faculty who need additional teaching support as a
key factor that has increased demand for instructional supplements.
Publishers also said instructors are requesting more supplements, such as
Web-based tutorials and self-assessment tools, to enhance student
learning. However, wholesalers, retailers, and others suggest that while
supplements may be of value to students, the increasing practice of
packaging them with textbooks effectively limits the students' ability to
purchase less expensive used books. Industry representatives and public
interest groups also suggested that publishers are revising textbooks more
frequently, and some expressed concern about the financial impact on
students. Their concern is that more frequent revisions limit the
opportunity students have to reduce their costs by purchasing used
textbooks and selling their textbooks back to bookstores at the end of the
term. While publishers generally agreed that the revision cycle for many
books is 3 to 4 years, compared with 4 to 5 years that were standard 10 to
20 years ago, they said revisions were necessary to keep the materials
current for faculty and to recoup their investments.

The price of a U.S. textbook may differ when the book is sold in other
countries primarily because publishers price their textbooks in order to
compete in local markets, and conditions exist that limit the resale of
books from lower-priced markets back to the United States. Publishers told
us that they produce textbooks primarily for the U.S. market and once they
have incurred development costs, they can sell textbooks at a lower price
in other countries because the cost of printing additional copies to sell
outside the United States is relatively low. Publishers told us they price
textbooks in other countries based on local market conditions, such as
income levels, the extent to which students are required to purchase
textbooks, and the availability of locally published textbooks. For
example, publishers told us that some U.S. textbooks are priced lower in
the United Kingdom because they must compete with locally produced
textbooks that are less expensive. Price differences between the United

States and other countries persist because there are barriers that limit
the reentry of textbooks into the United States. In some cases the cost of
locating lower-priced textbooks and shipping them to the United States
would result in a higher cost than purchasing them in the United States.
In other cases, purchases are restricted by agreements between publishers
and foreign distributors. For instance, some publishers told us that their
agreements with one online retailer outside the United States limit the
number of copies that can be shipped back to the United States.

We provided copies of a draft of this report to the Department of Labor
and the Department of Education for review and comment. The Department of
Labor provided technical comments on the use of its CPI data, which we
incorporated as appropriate. The Department of Education did not have any
comments. We received written comments from the National Association of
College Stores (NACS) and the Association of American Publishers (AAP),
the trade groups representing the companies we interviewed for this study.
NACS generally agreed with our findings, stating that the report
accurately portrayed the textbook industry. AAP agreed with some findings
in the report, but expressed concern with respect to the data sources we
used in our analyses and with characterizations provided by retailers and
wholesalers on the impact of publisher practices on students. We carefully
reviewed the data sources available on college textbook pricing, and found
the data we used to be the most complete and reliable data available for
our purposes. Additionally, we sought perspectives from publishers,
retailers, and used book wholesalers, to ensure our characterization of
the textbook industry was balanced and complete. Both NACS and AAP also
provided technical comments, which we incorporated where appropriate.

Background 	The college textbook market is complex, comprised of many
publishers, retailers, and used book wholesalers. Textbooks include new
and used books and can be combined with supplemental learning materials.
Figure 1 illustrates the typical life cycle of a textbook and the roles of
publishers, instructors, bookstores, wholesalers, and students.

may also consider what value they can add by publishing a given textbook
to move beyond reproducing what is already available in the market.

Publishers direct their marketing efforts at instructors, and sometimes
academic departments that make the decision about the course materials
they will use and ultimately require their students to purchase.
Publishers employ sales representatives who often call on instructors in
person to discuss product options and provide instructors with free sample
textbooks and instructional materials for consideration. Publishers also
market their products at professional conferences and meetings, as well as
through targeted mailings. Sales representatives typically receive a base
salary and have the opportunity to earn commissions based on the volume of
new course materials that are sold. They receive no compensation for
materials that students purchase used.

College textbook retailers collect information about the materials
instructors have selected for their courses and stock them for student
purchases. Located both on and off campus, college textbook retailers are
made up of a diverse group of businesses including independent
booksellers, campus cooperatives, and large retail chains. The National
Association of College Stores reports that about half of college textbook
stores are owned by the postsecondary institution they serve and one-third
are operated through lease agreements by outside companies. The companies
that operate stores on college and university campuses through lease
agreements typically pay a commission based on the total volume of sales
to the postsecondary institutions in lieu of rent. It is not uncommon for
the colleges and universities that contract with them to limit the margin
on textbooks.

As bookstores receive information from instructors on the books required
for the upcoming term, they determine the number of textbooks to order
based on factors such as estimated enrollment and previous sales. Even
with information on the number of students enrolled in the class, it can
be difficult to estimate the number of books students will buy because
many colleges and universities are served by more than one bookstore and
students may also obtain textbooks from a variety of other sources.
According to the National Association of College Stores, over 900
postsecondary institutions are served by multiple bookstores, with over 70
bookstores serving the 10 largest colleges and universities. Additionally,
because students now have the opportunity to purchase their textbooks via
the Internet from online retailers, no bookstore is without competition.

Retailers also attempt to make used books available to students,
recognizing that many students prefer to purchase used books because they
are generally less expensive. Bookstores generally buy as many used
textbooks from their students as possible and then turn to used textbook
wholesalers to obtain additional copies. However, the demand for used
textbooks is much greater than the available supply, which is estimated to
be between 25 and 30 percent of all textbooks in the market. The ability
of bookstores to make used books available depends, in part, on how early
they are aware an instructor will use a certain title. Receiving an order
for a textbook by the end of a term increases the ability bookstores have
to purchase used textbooks, particularly if the book is currently being
used and they can buy back the book directly from students who have
finished using it. Once the supply of used books has been exhausted,
bookstores complete their orders with new textbooks from publishers. When
instructors require new editions or materials that publishers have
customized specifically for their course, bookstores must rely exclusively
on publishers to fulfill their orders.

Wholesale companies facilitate the circulation of used textbooks by
purchasing used books from retailers and directly from students to
distribute to other retailers in need of used textbooks. Three major
wholesale companies distribute textbooks nationally, and several smaller
wholesalers distribute textbooks in specific regions of the country. Two
of the national wholesalers also operate retail bookstores, and the other
is tied to a retail chain through common ownership. Wholesalers have
developed a complex model for determining the wholesale value of any given
textbook based on factors such as demand, the available supply, and when a
new edition is likely to be released. Because the supply of used books is
limited and demand is high, wholesalers rank retailers in order to
determine which will get first priority in receiving the used books they
desire. Generally, national wholesalers give first priority to retailers
that supply them with the most used books and do not return many of the
books they purchase. To encourage bookstores to supply used books,
wholesalers pay a commission and cover the cost of shipping the books to
their warehouses.

While students have little choice over which textbooks they must purchase,
they have some choice in where they buy their textbooks. Many campuses are
served by multiple bookstores, and students may also be able to obtain
their books through book exchanges on their campus. Advances in technology
have allowed students to bypass traditional textbook outlets with expanded
purchasing options online. A local bookstore may provide convenience,
speed, and return options, while

online retailers and student-to-student exchanges may offer lower prices.
In some cases, textbooks meant to be sold in international markets at
lower prices are also available to U.S. students through online retailers.

In addition, students can sometimes offset their costs by selling back
their books at the end of the term. Generally, if a book is in good
condition and will be used on the campus again, bookstores will pay
students 50 percent of the original price paid. If the bookstore has not
received a faculty order for the book at the end of the term and the
edition is still current, bookstores may offer students the wholesale
price of the book, which could range from 5 to 35 percent of the new
retail price. This practice allows bookstores to provide an added service
to students while supporting the national availability of used books.
Students can also sell their books online to a wholesaler or to an
individual. However, if a new edition of the book is forthcoming, students
would not generally be able to sell back the book.

College textbook prices have risen at double the rate of inflation for the
last two decades but have followed the trend of tuition increases at
postsecondary institutions. The average growth in college textbook prices
has been 6 percent per year since academic year 1987-1988, ranging from 4
percent in 1993-1994 to 9 percent in 1989-1990.2 Meanwhile, tuition and
fees have increased at an average of 7 percent per academic year during
the same period, while overall price increases averaged 3 percent per
academic year. Not only have textbook prices steadily increased each year,
but the overall change in textbook prices has been substantial. According
to a BLS research series on the CPI for college textbooks shown in figure
2, prices in December of 2004 were 186 percent higher than they were in
December of 1986, the first month in which data were available, compared
with a 240 percent increase in the cost of tuition and fees at colleges,
universities, and professional schools.3 Overall price inflation was 72
percent during the same time period.

  College Textbook Prices Have Grown at Twice the Rate of Inflation, Trailing
  Annual Tuition Increases

2An academic year is defined as September through August for this
analysis.

3The CPI measures the average change over time in the prices paid by urban
consumers for consumer goods and services, and the CPI for college
textbooks measures the average change over time of the price that students
and their families pay for college textbooks.

Figure 2: Annual Percentage Increase in College Textbook Prices, College
Tuition and Fees, and Overall Price Inflation, December 1986 to December
2004

Note: Data have not been seasonally adjusted.

With certain publisher packaging practices, supplementary products may
sometimes be included in the price of the textbook for this index, but it
is not possible with available data to determine the extent to which these
practices may have contributed to price increases. The prices collected
for BLS's textbook index represent new college textbook prices at
colleges, universities, and professional schools at which textbooks are
required.4 Because only the price of the textbook is collected, the prices
of any supplementary materials that may be available are typically not
reflected

4Although only new textbook prices are collected, standard industry
pricing practices generally result in used book prices tracking the
movement of new book prices. Wholesalers and retailers agree that the
standard pricing practice for used books is to assign a price that is
equal to 75 percent of the new price of the same book, so that if the new
book price increases by 3 percent, the used book also increases by 3
percent.

in the index. However, if the textbook is only available at the bookstore
in combination with some other course material-a practice commonly
referred to as bundling-then the price of the entire bundle is collected.
Officials at the Bureau of Labor Statistics told us that the practice of
bundling has become increasingly prevalent in recent years. However, they
told us it is not possible to determine with the information available the
extent to which bundling may have contributed to increases in college
textbook prices. For more information about the methodology used for
constructing this index, please refer to appendix I.

Increases in college textbook prices were particularly high for the
academic years 1989-1990 and 2001-2002, at 9 percent and 8 percent
respectively. Since 2001-2002, the growth in textbook prices has been
slowed, increasing by 5 percent in 2003-2004. Appendix II contains more
details on average annual changes in textbook prices.

While increases in textbook prices have not followed far behind hikes in
college tuition and fees, the cost of textbooks and supplies as a
percentage of tuition and fees varies for degree-seeking students
attending different types of institutions. According to data from
Education's Integrated Postsecondary Education Data System, first-time,
full-time students attending 4-year private, nonprofit colleges were
estimated to spend $850 for books and supplies in their first year, or 8
percent of the cost of tuition and fees during academic year 2003-2004, as
shown in figure 3.5 In contrast, first-time, full-time students paying
in-state tuition at 4-year public colleges or universities were estimated
to spend 26 percent of the cost of tuition and fees on books and supplies,
or $898, during the same period. At 2-year public colleges, where
low-income students are more likely to begin their studies and tuition and
fees are lower, first-time, fulltime students are estimated to spend 72
percent of the cost of tuition and fees on books and supplies.6
Specifically, 2-year public colleges estimated that their first-time,
full-time students would spend about $886 in 20032004 on books and
supplies. In 2002-2003, the last year for which

5We did not validate the methodology the institutions used to derive these
estimates. These estimates are gross, that is, they do not estimate what
students might receive if they resell their books. Because retailers may
pay up to 50 percent of the retail price for used textbooks, students' net
costs may be reduced substantially. Also, while these figures include the
cost of supplies, we cannot disaggregate those cost from the totals. More
detail on Education's definition of supplies is in appendix I.

6Estimates for 2-year students are for students who are legal residents of
the locality in which they attend school and thus receive any reduced
tuition charges that may be offered by the institution.

enrollment data are available, students attending 2-year public colleges
represented 42 percent of all postsecondary students.

Figure 3: Estimated Cost of Textbooks and Supplies as a Percentage of
Tuition and Fees, Academic Year 2003-2004

While publishers, retailers, and wholesalers all play a role in textbook
pricing, the primary factor contributing to increases in the price of
textbooks has been the increased investment publishers have made in new
products to enhance instruction and learning according to industry
executives we interviewed. In particular, publishers point to the high
cost associated with the development of technology applications that
supplement traditional textbooks. Publishers told us they have made these
investments to meet changing needs of higher education, such as the
increase in part-time faculty who require greater instructional support
and supplements that will enhance student learning of the subject matter.
While wholesalers, retailers, and others do not question the quality of
these materials, they have expressed concern that the publishers' practice
of packaging supplements with a textbook to sell as one unit limits the
opportunity students have to purchase less expensive used books.
Additionally, wholesalers, retailers, and others have expressed concern

  Publisher Investments in New Products Have Contributed to Increases in
  Textbook Prices

about how certain publisher practices, such as revising textbooks more
frequently and increasing the availability of custom publishing options
for instructors, have affected their ability to help students save money
by providing used textbooks and buyback services.

                            How Textbooks Are Priced

Publishers set the net price, or the price bookstores pay publishers to
obtain the textbook, based on development and production costs, expected
sales, and competition from comparable products available in the market.
While the amount spent on development and production varies across
publishers and specific titles, the publishers to whom we spoke
underscored the substantial investments they make before a single textbook
is sold. These include the cost of author advances, the development of
content for the textbook and supplements, copyrights and permissions for
illustrations and photographs, along with the cost of typesetting and
printing enough copies to provide sample copies and cover expected sales.

In estimating expected sales of textbooks, publishers must consider the
size of the overall market for a given textbook, the amount of market
share they can reasonably capture based on the availability of competing
products, and the availability of used books in subsequent years. The
publishers we talked to focus heavily on publishing textbooks for
introductory-level courses because the market is larger, even though
competition for market share tends to be greater. Publishing in smaller
markets can still be attractive, though, according to one publishing
executive, because publishers may be able to attain greater market share,
as there are generally fewer competing titles. Regardless of the market
for a particular textbook, publishers told us that new textbook sales are
highest in the first year an edition is available, with sales declining
each year as the supply of used books becomes greater.

Publishers told us that they must price their textbooks based on what
similar textbooks in the market are selling for, even if it will not
generate enough revenue to offset their costs or they could lose sales to
more competitively priced products. As a result, publishers noted that
textbooks may not realize a profit in the first year of publication.
Publishers told us that they are willing to take this financial risk
because of the long-term rewards they expect for successful textbooks.

While each college store determines its own pricing model, many utilize a
similar approach for determining the price of new and used textbooks.
Bookstores set the retail price to ensure a certain percentage of the
selling

price goes to the bookstore. This percentage, commonly referred to by
retailers as the margin,7 covers bookstore costs and may allow the store
to realize a profit. While the margin may vary at different individual
bookstores, the average margin on new college textbooks among stores
reporting to the National Association of College Stores is about 23
percent.8 The margin on used textbooks, however, is typically higher. Used
textbook prices are directly linked to new textbook prices as retailers
and wholesalers typically follow a traditional pricing practice. According
to this practice, retailers purchase used books from wholesalers at 50
percent of the new retail price and in turn charge students 75 percent of
the new retail price to purchase the book. This pricing practice results
in a 33 percent margin on used books for bookstores. Table 1 illustrates
the typical pricing practice for a new and used textbook. College
bookstores justify higher margins on used textbooks based on increased
inventory risks and resources involved in preparing the books for resale.9

Table 1: Illustration of Typical Textbook Pricing Practice for $100
Publisher-Priced Book

                                                                Margin (price 
                                                                  increase -: 
                                                                       retail 
                       Net price Retail price Price increase           price) 
          New textbook      $100         $129            $29              23% 
                  Used                                       
              textbook       $65          $97            $32              33% 

Source: GAO analysis.

Note: Prices rounded to the nearest dollar.

7Two terms, markup and margin, are commonly used to describe the
difference between the net (or publisher) price and the retail price of
textbooks. Publishers commonly refer to the markup, or the price increase
relative to the publisher price, while college bookstores typically refer
to the margin, the percentage of the retail price that they keep.

8National Association of College Stores, 2005 College Store Industry
Financial Report (Oberlin, Ohio: 2005).

9For example, buying back books from students represents an inventory risk
because it requires a substantial financial investment, which bookstores
cannot recoup until they sell the books to another student or a
wholesaler.

    Publishers Have Developed New Product Options to Meet Perceived Needs of
    Instructors and Students

The factors that publishers consider in determining the price of their
textbooks has not changed over time, but the nature of offerings from
higher education publishers has changed in recent years. Publishers say
they have invested heavily in developing additional textbook supplements
for instructors and students, particularly resource-intensive technology
applications, and ensuring that the content they provide is updated with
the most current pedagogy and examples. Publishers told us they are making
these investments in response to the changing needs of the higher
education community and to remain competitive in the marketplace. While
supplements are not new, publishers told us the number and variety of
supplements available for a given textbook have increased substantially in
the last 10 years.

Even though there has been widespread consolidation among textbook
publishers over the last 20 years, publishers characterized the textbook
market as intensely competitive and said this competition drives what
products they offer and ultimately how they price their textbooks. Because
the adoption process in which instructors select the textbooks and
materials they wish to use in their courses is central to ensuring sales,
publishers told us that they focus their efforts on developing textbooks
and accompanying materials that will meet the diverse needs of instructors
and their students. To ensure their products are appealing to instructors,
publishers say they must offer a wide range of materials that accommodate
a variety of teaching and learning styles. Publishers fear that if they
are unable to keep up with offerings of their competitors they will lose
adoptions and ultimately market share. One industry analyst we spoke to
speculated that the consolidation of publishers and a lack of new entrants
are largely factors of the enormous investments required to compete in the
marketplace. The analyst said that by consolidating, publishers may gain
economies of scale and spread their overhead and other costs across more
titles.

Publishers say the investments they are making in product development are
largely in response to changes in higher education that have resulted in
publishers playing a more central role in facilitating instruction and
learning. For example, publishers have always provided no-cost
instructional supplements to help faculty teach their courses, but these
offerings have intensified in recent years. In particular, publishers told
us that the increased demand for instructional technology applications has
resulted in high development costs. They say that since the advent of the
Internet, postsecondary institutions have made substantial investments in
technology and increased their expectations for instructors to make use of
technology in the classroom. In response to this demand, publishers have

invested millions of dollars in developing content that can be delivered
via technological applications, such as Web sites and CD-ROMs, to
accompany their textbooks. Some of these applications are designed to help
instructors be more effective in the classroom, while others are intended
for student use to enhance their learning of the material.

Publishers told us that they have tailored their instructional supplements
to enhance instructor productivity and teaching, largely to meet the needs
of instructors in an environment of funding cuts. Publishers say tools
designed to enhance instructor productivity are in demand because
reductions in the number of teaching assistants available to help
instructors have increased the administrative burden for instructors. For
example, publishers have developed online homework and quizzes that allow
instructors to track student progress quickly, saving instructors time.
The homework and quizzes students complete online can be graded
immediately to provide both the instructor and students with immediate
feedback on performance. The need for greater teaching support is another
area in which publishers told us there has been increased demand, stemming
largely from a reduction in the employment of full-time tenure track
faculty at institutions across the country. Publishers say they are now
providing more extensive curricular support including lesson plans,
homework sets, multimedia lectures, and even workshops on specific
teaching approaches. While these materials are provided at no cost to
instructors, the cost of developing them is built into the price of the
textbook.

Publishers also described a wide array of supplements that faculty can
adopt that are intended to enhance student learning and success in the
course. Publishers say there is a growing demand for these products
because the number of students who are unprepared for college-level work
has been increasing. Student supplements are either sold separately or
bundled with the textbook, but the bulk of the development costs are
typically built into the price of the textbook, according to publishers.
While publishers produce print supplements, such as study guides and
solutions manuals to accompany their textbooks, technology content
represents the area in which publishers say they are investing more
substantially. For example, one publisher told us the company had invested
over $1 million in the development of a CD-ROM that provides
three-dimensional images to enhance learning in anatomy. In the short
term, these investments are very costly for publishers, but publishers are
predicting increased demand for these products over time, with more
content delivered digitally. Electronic content is appealing to publishers
because sales of these products would be less affected over time by the

used textbook market than print products, which can more easily be bought
and sold in the used textbook market. Specifically, passwords to
restricted access Web sites cannot be resold, and there is no national
used market for other types of electronic products, such as CD-ROMS and
software, because retailers and wholesalers cannot easily verify that the
products are functional once they have been used.

    Wholesalers, Retailers, and Others Express Concern That Some Publisher
    Practices May Unnecessarily Increase Costs to Students

Concerns about Bundling

Wholesalers, retailers, and some public interest groups acknowledge that
publishers are making substantial investments to develop textbooks and
supplementary materials, but they have expressed concern about the impact
some publisher practices may have on student costs. In particular, they
think some of the strategies employed by publishers, such as bundling
textbooks with supplements and revising textbooks more frequently, may
limit the ability students have to decrease their costs by purchasing less
expensive used textbooks.

Wholesalers, retailers, and some public interest groups agree that there
has been a proliferation of supplements in recent years, and they have
expressed concern about the increasing practice of selling supplements and
textbooks bundled together in a package. While wholesalers and retailers
do not question the quality of these materials, they suggest the practice
of combining these supplements with textbooks limits students' ability to
reduce their costs by purchasing less expensive used books and choosing
which, if any, supplements they want to purchase. Retailers told us that
when bundling started becoming more common, it became difficult for them
to obtain supplements separately from publishers to provide students the
option of buying a used book and selected supplements. Though publishers
say that most supplements are now available separately, retailers said
that because publishers often discount bundles, most of the savings
students could expect from purchasing a used textbook would be negated if
they bought the supplements separately. For example, a new book may be
bundled with an access code to a companion Web site at no additional cost
to the student. Students who choose to buy a less expensive used textbook
will have to purchase the access code separately, but the combined cost of
the used book and the access code will be similar to the price of the new
course materials sold in a bundle. One retailer also noted that publishers
assign every product a unique identification number, whether sold
individually or bundled. Because the identification number for a bundle
varies based on the specific combination of materials included in the
package, the retailer told us it can be difficult to identify the
individual components in the bundle to order them separately from
publishers or, when available, through the

used textbook market. Publishers note, however, that the standard industry
practice of assigning each bundle a unique identification number is
intended to make it easy for students, retailers, and wholesalers to
obtain a complete description of the bundle's contents by entering the
identification number online.

Publishers told us that textbook sales representatives work to identify
materials that will best meet a given instructor's needs and generally
bundle course materials with the textbook when the instructor desires it.
However, retailers said that instructors are often unaware that the course
materials they selected will come bundled, based on routine follow-up
discussions that stores have had with instructors. Retailers told us that
many instructors want the supplements to be available for their students
but also want students to have the option of buying a used book. However,
some publishers say that the discounts available on bundles are a selling
point with instructors, along with the assurance that students will
purchase the correct course materials.

While publishers typically allow retailers to return new textbooks that
are not sold without penalty if the textbooks are in new condition, when
course materials are bundled together they can be returned only if the
seal is unbroken. Retailers explained that their stores offer generous
return policies to accommodate students who, for example, buy the wrong
course materials or drop a course. If a student has broken the seal of the
bundle, retailers say they will not be able to return the materials to the
publisher for a refund. One retailer told us that its stores will
generally accept returns of unsealed bundles to minimize ill will with
students but that they would have to absorb the return as a loss.

Some publishers acknowledged that there has been resistance to the
practice of bundling, and some told us they are now more carefully
considering when bundling may be appropriate. While the practice is
designed to provide students with greater value, publishers understand
that students must perceive that value for a bundle to sell. Publishers
say they are also beginning to understand that as students may be
sensitive to high prices, they must strike a balance between quality and
price. For example, one publisher provided an example of a bundle that did
not sell well because the number of components increased the price beyond
what students were willing to pay. While the publisher knew that the
textbook and the individual components would retail separately for much
more, students perceived the price as too high. Publishers also told us
that bundling is most effective when instructors make use of all the
materials included in the bundle and stress their importance to students.
Publishers

Concerns about the Frequency of Revisions

understand that when students spend money for course materials that are
never used they may perceive the purchase as unnecessary.

Industry representatives and some public interest groups also suggested
that publishers are revising textbooks more frequently, and some expressed
concern about the financial impact revisions have on students. Retailers
and wholesalers told us that because instructors typically use the most
current edition of textbooks in their courses, the previous edition
becomes obsolete once a new edition is released. Once retailers and
wholesalers learn of a pending new edition, typically several months in
advance of the release date, they said the buyback value drops rapidly to
zero. Once a new edition is released, retailers say they generally cannot
buy back an old edition from students, a practice that helps students
reduce their costs.

Publishers agreed that the revision cycle for many books has accelerated
over time, but most said that it has been stable in recent years. While
textbook revision cycles can vary based on several factors, such as the
level of the course and the discipline, publishers told us that textbooks
are generally revised every 3 to 4 years, compared with cycles of 4 to 5
years that were standard 10 to 20 years ago. Publishers say that the
revision cycle is driven by instructors who want the most current material
and may seek products from competitors if they are unable to meet the
demand. Publishers cited a recent poll of 1,029 college professors
commissioned by the Association of American Publishers that found that 80
percent of those polled think it is important that the material in the
textbook be as current as possible.10 However, this may not be universal
across disciplines. For example, over 700 mathematics and physics
instructors from 150 universities across the country have petitioned one
publisher to delay revisions until there have been substantial changes in
content or teaching

11

methods that merit revision.

Publishers noted that while not every revision results in substantial
content changes, revisions must also be made for other reasons, such as
changing teaching methods. For example, one publisher cited a teaching

10Zogby International, The Attitudes of College Faculty on the Textbooks
Used in Their Courses (Utica, New York: December 2004).

11As part of the state Public Research Interest Group's efforts to
advocate for lower prices for students, a number of faculty members signed
a letter dated April 2004 calling on one publisher to change certain
practices.

Concerns about Other Publisher Practices

approach from the 1980s that has regained popularity in calculus.
Revisions may be based on current events, such as including recent
accounting scandals in textbooks for business law and ethics courses, or
recent elections in political science textbooks. Publishers told us that
changes in industry standards that are relevant to a discipline may also
necessitate out-of-cycle revisions or updates, such as pronouncements
issued by the Financial Accounting Standards Board for accounting
textbooks.

Some wholesalers and retailers think that the revision cycle for some
textbooks has the effect of limiting the used market. For example,
retailers and wholesalers have observed that books for introductory-level
classes are on a shorter revision cycle than other books, possibly because
there is a greater supply of used books, as students are less likely to
keep them. One publisher we talked to said that books for introductory
classes are typically revised more frequently because demand for current
content and technology applications is greater in these courses. Most
publishers maintain that their decisions to revise a book are based on
factors other than sales patterns. However, one publisher we spoke with
said that the current revision cycle at the company is tied to the pattern
of sales revenues, which all publishers agreed decline the longer the
textbook is on the market and more used copies become available.
Publishers estimated that in the second year of an edition they might sell
25 percent to 70 percent of the textbooks that were sold in the first
year, depending on level and discipline. Moreover, publishers say that
they count on textbook revisions to recoup the initial investment costs of
developing the textbook. They told us that first-edition textbooks are
highly risky and that only about 20 to 30 percent of their first-edition
textbooks are ever revised. However, they said that they are willing to
take on this risk based on the long-term rewards they expect to receive
from successful textbooks that are revised.

Wholesalers, retailers, and some public interest groups have also raised
concerns about other publisher practices that may limit students' ability
to purchase used textbooks, such as custom publishing, which allows
instructors to customize their course materials by adding or deleting
chapters from a single textbook or multiple textbooks. According to
publishers, technological advances have made the practice more
costeffective and the adoption of custom materials has been increasing.
Publishers say that custom publishing appeals to instructors because it
allows them to consolidate material from multiple sources into one
textbook for their students. Publishers also think it provides students
with good value because instructors are more likely to use all of the
material

they select. Because the price of custom publishing is based on the
content, the price of custom textbooks may be lower than for a traditional
textbook, according to publishers. For example, students might pay less
for one custom textbook than they would for several books the instructor
might have required if customization was not available. Some publishers
also observed that sales of custom materials tend to be better because
instructors are committed to using all of the material, and there is no
national used textbook market for them.

Retailers and wholesalers said that because there is no resale market for
a given custom textbook outside the campus where it was originally used,
students may lose out on the ability to save money by buying used books
and selling them back at the end of the term. One retailer expressed
particular concern about a few specific instances in which textbook covers
had been customized with the mascot or logo of a specific institution, but
the content of the textbook was the same. Because these textbooks are
designed for a specific campus and have a unique identification number,
there is no national used market for them. In addition, retailers say that
publishers place strict return limits-typically 10 percent-on custom
textbooks, even though traditional textbooks are usually fully returnable
to the publisher. As a result, retailers say that they have to carefully
balance their commitment to carrying an adequate supply of custom
materials for students against the risk of exceeding the return limit if
they do not sell enough copies.

Wholesalers, retailers, and others are also concerned about the long-term
cost implications for students that may result from publisher practices to
provide lower-cost alternatives to the traditional textbook. Among these
alternatives are loose-leaf textbooks that are designed to be placed in a
binder and electronic textbooks that are available for purchase online.
While these options may save students money initially, wholesalers and
retailers are concerned about the long-term cost implications for
students. For example, students may initially pay less for a loose-leaf
textbook than they would for a textbook that is bound, but wholesalers and
retailers said students would be unable to sell a loose-leaf book back
because it is not possible to determine whether all the pages are intact.
With electronic textbooks, students may pay about half of the price of a
new textbook for password-protected access to an online version of the
textbook. Until the password expires, students can access the textbook as
many times as they wish, either reviewing the chapters online or printing
a hard copy. Some public interest groups initially embraced the idea of
electronic textbooks but now point out that students may run into
technical difficulties if they have to rely on Internet access.
Additionally, because access to the

  The Price of U.S. Textbooks Sold in Other Countries Varies according to Local
  Market Conditions

textbook may expire, students may not have the option at the end of the
term to keep the textbook. According to publishers, electronic textbooks
have not caught on with students, and sales of these products have been
unsuccessful.

College textbook prices in the United States may exceed prices in other
countries because textbook publishers assign prices that reflect the
market conditions found in each country. The demand for textbooks can vary
across countries because of, for example, differences in income levels or
in the classroom role of textbooks. Publishers typically incur substantial
costs in order to develop textbooks, but once these development costs have
been undertaken, the additional cost of producing more copies is quite
low. As a result, a publisher may be able to profitably sell textbooks in
one country at prices that are closer to actual costs of printing and
distributing additional copies while charging higher prices in the United
States that reflect the substantial development costs undertaken. Two
factors are typically cited as enabling a seller, such as a publisher, to
profitably charge different prices to different buyers, such as textbook
buyers in different countries. The seller must be able to distinguish
among groups with differences in their willingness and ability to pay a
given price, and the ability for these groups to buy and sell among one
another must be restricted. Traditionally, the geographical separation of
markets has made it difficult for U.S. students to acquire lower-priced
textbooks from other countries. More recent developments in Internet
commerce have reduced the costs for buyers in the United States to acquire
textbooks from other countries, causing publishers to reexamine their
distribution arrangements.

    Varying Local Market Conditions and Barriers to Importation Help Explain
    Textbook Price Differences between the United States and Other Countries

Textbook publishers told us that college textbooks are developed primarily
for sale in the United States, based on cost considerations and demand
forecasts for the North American market, but that they sell textbooks in
other markets when there is international demand. Textbooks developed for
certain academic disciplines are more likely to have broader international
appeal than others, according to publishers. For example, the content
found in many mathematics, science, and engineering textbooks is
essentially global in its applicability. However, the content found in
textbooks used in other disciplines, such as political science, may
pertain much more specifically to U.S. experiences, institutions, or
culture. If international demand for a textbook exists, publishers may
sell the same textbook that is sold in the United States, an international
edition produced with less expensive materials, or an

adaptation of the textbook that includes locally relevant examples. In
international markets where the primary language spoken is not English,
publishers may sell the rights to translate the textbook into the local
language.

In assigning prices to the different versions of U.S. textbooks sold in
the international marketplace, publishers told us that they consider local
market conditions and the willingness and ability of students to purchase
the textbook. As there can be significant intercountry differences in the
demand for textbooks, publishers told us that they make country-bycountry
and book-by-book distribution and pricing decisions. Specifically,
publishers told us that factors they consider in making pricing decisions
are income levels, the cost of living, the role of the textbook in the
classroom, intellectual property protections, the strength of the local
currency, and the prices of competing textbooks sold in that marketplace.
In some cases, international prices may be substantially lower than prices
at which the textbook is sold in the United States, while in other cases,
they may be the same as or higher than U.S. prices. For example,
publishers told us that in many developing countries, incomes are
generally too low for students to buy textbooks at U.S. prices. However,
in areas where the cost of living is generally higher than in the United
States, such as in Scandinavian countries, textbook prices may be higher.

Publishers told us that they have to be particularly concerned about
pricing at a level that is affordable to students in developing countries
because of the threat of piracy in these countries. Although they already
grapple with piracy in many of these markets, publishers say that even
fewer legitimate copies would be sold in these markets if prices were too
high. According to publishers, some countries do not have a strong
commitment to intellectual property protections, but governments have been
more responsive in dealing with piracy cases when textbooks are priced at
a level that local students can afford.

In addition to income levels, differences in instructional styles and
systems of higher education influence publishers' pricing decisions. For
example, publishers told us that even though average income levels are
high in the United Kingdom, textbooks tend to sell for lower prices than
in the United States because the demand for textbooks is lower.
Specifically, they said that instructors in the United Kingdom are more
likely to recommend several textbooks for students to consider, rather
than requiring a specific textbook. Additionally, publishers told us that
there is less demand for electronic and print supplements to support
teaching and learning in non-U.S. markets. Publishers also told us that
because higher

education funding tends to be highly subsidized in the United Kingdom and
European countries, students may not be willing to pay out-of-pocket costs
for textbooks at U.S. prices. According to publishers, textbook prices in
Canada and Australia tend to be similar to those in the United States
because the instructional styles are similar in that instructors select
specific textbooks for their classes. However, publishers noted that in
these markets there is also greater demand for U.S. textbooks that have
been adapted to the local culture or economy.

The National Association of College Stores has criticized the practice of
differential pricing, or the publisher practice of charging lower prices
in some countries, saying that it is unfair for U.S. students to pay more
for the same textbooks. However, the practice of differential pricing is
not exclusive to textbook publishing and occurs both within and outside
the United States. For example, GAO has reported on differential pricing
in the airline industry, where business travelers typically pay much
higher fares than leisure travelers.12 Likewise, we have reported on
differential pricing of prescription drugs in the pharmaceutical
industry.13 Publishers can afford to sell textbooks at prices that are
sometimes lower outside the United States because once development costs
have been incurred for the U.S. market, the incremental cost of producing
additional copies for the international market is low. This allows
publishers to sell textbooks in other countries at prices that are closer
to printing and distribution costs while charging prices in the United
States that better reflect the high costs of development. The publishers
we talked to estimated that international sales make up from 5 to 15
percent of their total revenues. Some publishers speculated that without
the added revenues from international sales, they would feel more cost
pressure and would have to either increase U.S. prices or invest less in
certain products.

In order for international pricing differences to persist, there must be
barriers that limit mass importation of less expensive U.S. textbooks from
other countries. Such barriers ensure that individuals and businesses
purchase from the intended distribution channels and insulate students

12GAO, Aviation Competition: Restricting Airline Ticketing Rules Unlikely
to Help Consumers, GAO-01-831 (Washington, D.C.: Jul. 31, 2001).

13GAO, Prescription Drugs: Companies Typically Charge More in the United
States than in Canada, GAO/HRD-92-110 (Washington, D.C.: Sept. 30, 1992);
and GAO, Prescription Drugs: Companies Typically Charge More in the United
States than in the United Kingdom, GAO/HEHS-94-29 (Washington, D.C.: Jan.
12, 1994).

from awareness of price differences in other countries. Historically, the
geographic separation of countries served as a natural barrier preventing
such trade from occurring. Geographic distances and lack of information
made it difficult for individuals or businesses in the United States to
save money on textbooks by purchasing lower-priced textbooks in other
countries and having them shipped to the United States, a practice
commonly referred to as reimportation. However, recent technological
developments in electronic commerce have diminished the effects of this
natural barrier, increasing awareness of prices in other countries and
making it easier for students and retailers to purchase lower-priced
textbooks from international markets.

    Publishers Have Taken Recent Steps to Limit the Reentry of Their Textbooks
    into the U.S. Market

Retailers and publishers have expressed concern about the reimportation of
lower-priced textbooks from international locations. Specifically, they
cited the ability students have to purchase books from online distribution
channels outside the United States at lower prices, which may result in a
loss of sales for U.S. retailers. Additionally, the availability of
lower-priced textbooks through these channels has heightened distrust and
frustration among students regarding textbook prices, and college stores
find it difficult to explain why their textbook prices are higher,
according to the National Association of College Stores. Retailers and
publishers have also been concerned that some U.S. retailers may have
engaged in reimportation on a large scale by ordering textbooks for entire
courses at lower prices from international distribution channels.
Concerned about the effects of differential pricing on college stores, the
National Association of College Stores has called on publishers to stop
the practice of selling textbooks at lower prices outside the United
States.

Publishers told us that they intend for the textbooks they distribute in
other countries to be sold for use in those countries, not for resale to
the United States, and so have taken recent actions to limit large-scale
reimportation. Most of the publishers with whom we spoke say they are
particularly concerned about the actions of foreign distributors and U.S.
retailers that may result in large-scale reimportation of textbooks. As a
result, publishers told us they have taken recent steps to limit the
reimportation of textbooks in large quantities. Specifically, publishers
told us that they have strengthened their agreements with foreign
wholesalers to prevent the large-scale sale of U.S. textbooks back to the
United States. Some publishers also said they have made an agreement with
an online retailer outside the United States to limit the number of copies
of a given textbook that can be delivered to a single U.S. address in one
order. Because these measures target large-scale reimportation of U.S.
textbooks

Concluding Observations

from international sources at lower prices, they will not prevent U.S.
students from purchasing single copies of textbooks from international
sources.

College textbook prices have risen steadily, along with tuition and fees,
and appear to have been largely driven by investments in supplements.
While price increases have resulted in increasing costs for students and
their families, they reflect a change in the characteristics of
postsecondary education. Just as teaching and learning have changed with
increasing reliance on technology, the college textbook has evolved from a
standalone text to include a variety of ancillary products designed to
enhance the educational experience for instructors and students. By
increasingly becoming involved in the development of instructional aids,
publishers are assuming roles that have traditionally belonged to
postsecondary institutions. If publishers continue to increase these
investments, particularly in technology, the cost to produce a textbook is
likely to continue to increase in the future.

Although changes in the nature of college textbooks are evident, it is
difficult to assess the impact of these changes on students. Instructors
can now select from a much wider variety of supplements to tailor their
courses to the needs of their students, but these additional textbook
offerings may come at an increased cost to students. While textbook prices
have risen with tuition costs, these costs can vary greatly depending on
the type of institution a student is attending. Because textbooks may
represent a substantial portion of the cost of tuition and fees for
students attending some public institutions, any increase in textbook
prices may affect affordability and access disproportionately for some
students. Consequently, while students may benefit from the advances in
textbook supplements, they may not feel the price increases are justified
relative to what they spend on tuition. Students may also think the amount
they have to pay for their textbooks is unfair, especially if some of the
same textbooks are available at lower prices outside the United States.

Because the cost to students may not be the primary factor considered when
publishers are developing textbooks that students are ultimately required
to buy, the rate of textbook price increases is not likely to slow.
Students may lower their costs by purchasing used textbooks and may search
for lower-priced textbooks from online sources, including international
retailers, and directly from other students. However, these options are
unlikely to provide a sustainable source of lower prices because the
supply of these textbooks is limited and international prices are subject
to change. In addition, because publishers, wholesalers, and

  Agency Comments

many retailers are profit-seeking firms, any widespread action that would
lower costs to students at the expense of profits would be met with
changes in their business practices, such as changing distribution
patterns.

We provided copies of a draft of this report to the Department of Labor
and the Department of Education for review and comment. The Department of
Labor provided technical comments on the use of its CPI data, which we
incorporated as appropriate. The Department of Education did not have any
comments. We also sought comments on our characterization of the textbook
industry from the National Association of College Stores and the
Association of American Publishers, the trade groups representing the
companies we interviewed for this study.

NACS generally agreed with our findings, stating that the report
accurately portrayed the textbook industry. NACS also provided technical
comments that we incorporated as appropriate. NACS's comments appear in
appendix III.

AAP agreed with some findings in the report but expressed concern with
respect to the data sources we used in our analyses and the tone and
objectivity of the report.

With respect to the data sources we used, AAP expressed concern about the
limitations of the data we used in determining textbook price increases
over time, and the proportion of tuition and fees that spending on
textbooks and supplies represent for students at different types of
postsecondary institutions. AAP also suggested alternative data sources
for addressing these issues, but we found that they were not sufficiently
reliable for our purposes.

While AAP disagreed with our use of CPI data from BLS, these are the most
complete and reliable data on textbook prices available. Further, we
clearly disclose the limitations and definitions of the CPI data in the
report. AAP's claim that BLS data do not capture the "penetration of
lower-cost alternatives" is not accurate. The college textbooks CPI is an
index designed to capture the prices of assigned textbooks. To the extent
that lower cost alternatives are assigned, they would be fully reflected
in BLS's index. AAP also suggested that the availability of alternative
data from Student Monitor that differ substantially from the BLS data call
into question our decision to use BLS data as a sole source. We disagree
because the two data sources are not comparable. Student Monitor data are
measuring annual changes in student spending, while BLS data measure
annual price changes.

AAP also expressed concerns about the use of Education's IPEDS data, in
particular that estimates are for textbooks and supplies and that we did
not validate the estimates postsecondary institutions provided. We use
IPEDS data because they are the most complete data available on estimated
student spending. As we state in appendix I, we tested IPEDS for
reliability and note that other available data sources are not as complete
or reliable. AAP also questions the appropriateness of measuring estimated
spending on textbooks and supplies as a percentage of tuition. We present
these data to provide perspective on college affordability-a primary
federal policy concern. To address AAP's concerns about what constitutes
supplies, we have noted in appendix I that supplies are defined as usual
costs incurred by a majority of students. AAP also expressed concern that
in discussing estimates of student spending on textbooks, we did not take
into account the extent to which students lower their costs through
buyback. We have added this context where we discuss costs to students.

AAP also provided additional data sources for consideration and expressed
concern that deadlines prevented us from giving these sources appropriate
consideration. We considered other sources available that provide
estimates of student spending. Time was not a factor in our decision not
to use the data, but rather we found these sources to be not as complete
or as reliable as the IPEDS data. Student Monitor, one of the sources
suggested by AAP, provides market research for those targeting college
students as a consumer group. Student Monitor employs a nonprobabilistic
sampling methodology using an intercept-based quota sample of 1,200
students covering 100 colleges and universities. Because of the sample
selection process used, it cannot be used to estimate to the college
student population as a whole for the purpose of addressing a key finding.
Other industry sources AAP suggested provide estimates on the total size
of the market, but they cannot be used to provide representative estimates
on student spending for textbooks.

AAP expressed concern about the tone and objectivity of the report,
particularly the characterizations of retailers and wholesalers on the
impact of publisher practices on students. In most instances we had
already discussed issues raised by AAP in other sections of our report.
AAP took issue with comments made by wholesalers and retailers regarding
the impact of textbook revisions, bundling, and custom publishing on
students' ability to pursue lower-cost, used textbooks. We specifically
provide information on the views of wholesalers and retailers to add
balance and include more perspectives in our report. We provide publisher
perspectives on why they revise textbooks and characterize why and how the
revision cycle has changed over the last two decades. We

also extensively discuss in our report publisher perspectives on
supplements, bundling, and other options, such as custom publishing, while
capturing publisher views regarding their benefits. Wholesalers and
retailers provided a different perspective on these practices as they
relate to potential costs to students, which we captured in our report.

More generally, GAO's approach to this study was to rely primarily on
publishers to provide information on how they price textbooks and gain
their perspectives on the factors that influence price changes. We also
sought out other experts in the field, including retailers and
wholesalers, to better understand how students obtain textbooks and what
factors affect the cost to the student. Retailers and wholesalers did not
place blame on publishers but pointed out the impact of some publisher
practices on students. We do not place any blame in our report on the
publishers and do in fact note that they offer a variety of options for
students, sometimes at a discount. We also note in our report that faculty
have primary responsibility for determining what students are required to
buy.

AAP stated in its letter that it agreed with the findings related to
international price differences and the report's concluding observations.
AAP also provided technical comments, which we incorporated as
appropriate. AAP's comments appear in appendix IV.

As arranged with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from
its issue date. At that time, we will send copies of this report to the
congressional committees and subcommittees responsible for the Higher
Education Act, the Secretary of Education, the Secretary of Labor, and
other interested parties. Copies will also be made available to others
upon request. In addition, this report will be available at no charge on
GAO's Web site at http://www.gao.gov.

If you have any questions about this report, please contact me on (202)
512-7215. Key contributors to this report are listed in appendix IV.

Cornelia M. Ashby Director, Education, Workforce, and Income Security
Issues

List of Requesters

The Honorable George Miller
Ranking Minority Member
Committee on Education and the Workforce
House of Representatives

The Honorable Dale Kildee
Ranking Minority Member
Subcommittee on 21st Century Competitiveness
Committee on Education and the Workforce
House of Representatives

The Honorable Major Owens
Ranking Minority Member
Subcommittee on Workforce Protections
Committee on Education and the Workforce
House of Representatives

The Honorable Dennis Cardoza
The Honorable Raul Grijalva
The Honorable Maurice Hinchey
The Honorable Dennis Kucinich
The Honorable Carolyn McCarthy
The Honorable Betty McCollum
The Honorable Michael McNulty
The Honorable Donald Payne
The Honorable Bobby Rush
The Honorable Tim Ryan
The Honorable David Wu
House of Representatives

Appendix I: Objectives, Scope, and Methodology

To determine the extent to which textbook prices have changed over time,
we reviewed college textbook pricing data from the Bureau of Labor
Statistics' Consumer Price Index (CPI).1 The CPI measures the average
change over time in the prices paid by urban consumers for consumer goods
and services, and in the case of textbooks represents an index of change
over time of the retail price of college textbooks, or the price that
students and their families pay. While college textbooks have been
included in the CPI since 1964, data on textbooks in the Bureau of Labor
Statistics' (BLS) research database only go back to 1986, when BLS
collected textbook prices as part of an index on the price of books and
supplies. The agency began publishing a separate CPI series on textbooks
in 2001. Using these data, BLS constructed an unpublished research series
on college textbooks for GAO for the period of December 1986 through
December 2004. The index was compiled from three separate index series, as
outlined in table 2. The implications on the index of these differences in
methodology are discussed below.

Table 2: Source and Methodology for CPI College Textbook Research Series
Data

Time period Source and methodology

December 1986 to BLS produced the index using data collected for the
December 1998 Educational Books and Supplies CPI series.

December 1998 to December 2001

BLS applied a standard BLS calculation procedure to college textbook price
data in order to generate the index.

December 2001 to BLS used the published index for college textbooks, which
                                 December 2004

a

                      employs quality adjustment methods.

Source: BLS.

aFor a detailed analysis of these quality adjustment methods, see BLS,
Hedonic Quality Adjustment Methods for College Textbooks in the U.S. CPI
(Washington, DC.: October 2001).

The college textbook CPI is constructed using a probability-based
selection process that identifies bookstores as well as textbooks that are
assigned for use in courses of higher education. Prices for specific books
are taken from a variety of bookstores located on and off campus, as well
as from Web-based retailers, reflecting prices at public and private
postsecondary institutions, including 2-year, 4-year, graduate, and
professional schools. The sample composition changes each year for the
following reasons: (1) books assigned to classes change over time,

1Data for the college textbooks CPI have not been seasonally adjusted.
Seasonal adjustment removes the effects of recurring seasonal influences
from many economic series, including consumer prices.

Appendix I: Objectives, Scope, and Methodology

(2) some books cycle out of circulation, and (3) a quarter of the sample
rotates out annually. Similarly, the sample size for this research series
varies over time as sampling procedures are modified and may range from
200 to 500 price quotes. This variation in sample size does not affect the
value of the index, though fewer observations may affect the variance of
the index. Overall, BLS reports that the response rate for college
textbook CPI data collection is very high, 88 percent.

Most of the textbooks included in the sample are designated as required
texts for courses offered by the college or university associated with
each sampled bookstore. In some cases, the selected textbook may not be
available for pricing because the course has been terminated, the course
requires a different textbook, or the course is not offered every term. In
instances in which the course is no longer offered and the textbook is not
used in any other course, then the assigned textbook for a similar course
is selected as a substitute. If the textbook is no longer used for the
selected course, it is replaced with the textbook that is currently used
for the selected course. If the book is temporarily out of use (for
example, the course associated with the book is offered only in the fall
semester), then the book is listed as temporarily not available and the
price change is imputed based on the price changes of the other books.

An important limitation to this research series is that prior to 2001,
prices for such substitute books were not usually compared and no
adjustments were made for any qualitative changes between the previous and
substitute books.2 With the introduction of quality adjustment in 2001,
the index is adjusted when certain characteristics of a textbook change,
such as a move from a major to a smaller publisher or a considerable
change in the number of pages. If the new version of the textbook contains
substantially different characteristics and quality adjustment values are
not available, the price movement is imputed based on the prices of
comparable textbooks. Because hedonic quality adjustment is implemented
only for the published portion of the research series, for the periods
before 2001, the index may have higher variance than the published index,
which begins in 2001.

In addition, BLS officials pointed out that textbooks are increasingly
wrapped in packages along with additional materials, making it difficult
to

2Prices were compared only if the same book or a new edition of the same
book was priced.

Appendix I: Objectives, Scope, and Methodology

collect all of the qualitative characteristics of the textbook. If the
selected textbook is sold by itself, then only the textbook is priced.
However, if the selected textbook is automatically sold with another item,
such as a CD or workbook, then the agency must price the entire package.
As a result of these packaging practices, it is sometimes difficult for
BLS to obtain the information necessary for quality adjustment, and other
times the price recorded as the textbook price may also include ancillary
materials.

To put changes in textbook prices into the context of other changes in the
cost of higher education, we also reviewed CPI data on tuition and fees,
which are constructed using a probability-based selection process and
reflect the cost of tuition and fees at 2-year and 4-year institutions and
professional schools.3

We analyzed data from the Department of Education's (Education) Integrated
Postsecondary Data System (IPEDS) to determine the proportion of tuition
and fees that expenditures for textbooks and supplies represent.4
Specifically, postsecondary institutions estimate the amount first-time,
full-time, degree-seeking students will spend for an entire academic year
on textbooks and supplies and report on the amount of tuition and fees.
IPEDS defines books and supplies as the average cost of books and supplies
for a typical student for an entire academic year (or program). Supplies
are to include usual costs that are incurred by a majority of students.
Supplies required of special groups of students, such as engineering or
art majors, would not be counted unless they constituted a majority of
students at the institution. The Department of Education has not
established a comprehensive definition of what supplies are. However, an
Education official told us that supplies can include such things as
allowances for personal computers, but such expenses should be reported
only if they are required for a majority of students at the institution.

3Since the CPI for college textbooks is not seasonally adjusted, we relied
on nonseasonally adjusted data for the overall CPI as well as the CPI for
tuition and fees. There are no longterm significant differences between
the nonseasonally adjusted and seasonally adjusted indexes.

4IPEDS is a system of surveys designed to collect data from all primary
providers of postsecondary education. These surveys collect
institution-level data in such areas as enrollments, program completions,
faculty, staff, and finances. Data are collected annually from
approximately 9,600 postsecondary institutions, including over 6,000
institutions eligible for the federal student aid programs.

Appendix I: Objectives, Scope, and Methodology

To assess the completeness of the IPEDS data, we reviewed the National
Center for Education Statistics' documentation on how the data were
collected and performed electronic tests to look for missing or
out-ofrange values. On the basis of these reviews and tests, we found the
data sufficiently reliable for our purposes. We did not validate the
methodology the institutions used to derive their estimates for the cost
of books and supplies, and there has been no review of how well these
institutional estimates actually predict student spending on textbooks and
supplies.

There are other sources available that provide estimates of student
spending on college textbooks that we considered, but we did not find
these sources to be as complete or reliable as IPEDS. The College Board
collects estimates from postsecondary institutions on spending for books
and supplies for full-time undergraduate students as part of its Annual
Survey of Colleges. While the methodology employed was similar to that
used for IPEDS, the survey included responses from a smaller population of
institutions than IPEDS. Another source, Student Monitor, estimates
spending on college textbooks based on student-reported expenditures.
Student Monitor provides market research for those targeting college
students as a consumer group. Student Monitor employs a nonprobabilistic
sampling methodology using an intercept-based quota sample of 1,200
students covering 100 colleges and universities. Because of the sample
selection process used, it cannot be used to estimate to the college
student population as a whole for the purpose of addressing a key finding.

To determine what factors have contributed to the change in college
textbook prices, we interviewed executives from five of the largest
textbook publishers, representing more than 80 percent of new textbook
sales; the three national used textbook wholesalers; three companies that
operate over 1,300 college textbook retail stores, or 29 percent of stores
nationwide; the National Association of College Stores; the Association of
American Publishers; and various other industry experts.

To determine what factors have led to differences in the price of some
U.S. textbooks in non-U.S. markets, we conducted a review of economic
theory and relevant GAO work on differential pricing. We interviewed
representatives from textbook publishers, operators of textbook retail
stores, and used book wholesalers to determine the extent to which books
may be available in other countries at lower prices, their analysis of the
reasons behind these price discrepancies, and their concerns about pricing
differences.

Appendix II: Consumer Price Index Average Annual Percentage Growth, Academic
Years 1987-1988 to 2003-2004

                      CPI average annual percent increasea

         Academic year,        College textbooks  Tuition and         Overall 
        September-August                              fees             prices 
           1987-1988b                        7.8            7.3 
            1988-1989                        6.9            8.0 
            1989-1990                        9.3            8.0 
            1990-1991                        5.8            8.8 
            1991-1992                        6.7           11.6 
            1992-1993                        4.5            9.8 
            1993-1994                        4.2            7.6 
            1994-1995                        4.4            6.3 
            1995-1996                        5.5            5.8 
            1996-1997                        5.2            5.3 
            1997-1998                        5.1            4.5 
            1998-1999                        6.5            3.9 
            1999-2000                        5.8            4.0 
            2000-2001                        6.2            4.6 
            2001-2002                        8.1            6.5 
            2002-2003                        6.7            7.5 

2003-2004 5.2 9.8 2.3

Average per year, 1987-2004 6.0 7.0 3.0

Source: BLS published Tuition and Fees CPI and overall CPI, unpublished
College Textbook CPI research series.

aData are not seasonally adjusted.

bAcademic year 1987-1988 shows the growth in prices over the previous
academic year, 1986-1987. Data for the 1986-1987 estimate lack the months
of September through November, as data became available in December of
1986. As a result, the average price level in 1986-1987 is based on 9
months of data rather than 12.

Appendix III: Comments from the National Association of College Stores

Appendix III: Comments from the National Association of College Stores

Appendix IV: Comments from the Association of American Publishers

Appendix IV: Comments from the Association of American Publishers

Appendix IV: Comments from the Association of American Publishers

Appendix IV: Comments from the Association of American Publishers

Appendix IV: Comments from the Association of American Publishers

Appendix IV: Comments from the Association of American Publishers

Appendix IV: Comments from the Association of American Publishers

Appendix IV: Comments from the Association of American Publishers

Appendix V: GAO Contact and Staff Acknowledgments

    GAO Contact Cornelia M. Ashby, Director, (202) 512-7215, [email protected]

  Staff Acknowledgments

(130413)

Bryon Gordon, Assistant Director Debra Prescott, Analyst-in-Charge Whitney
Schott, Analyst

In addition to those named above, Stephen Brown, Jonathan McMurray, and
John Mingus made significant contributions to this report.

  GAO's Mission

Obtaining Copies of GAO Reports and Testimony

The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting its
constitutional responsibilities and to help improve the performance and
accountability of the federal government for the American people. GAO
examines the use of public funds; evaluates federal programs and policies;
and provides analyses, recommendations, and other assistance to help
Congress make informed oversight, policy, and funding decisions. GAO's
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no cost
is through GAO's Web site (www.gao.gov). Each weekday, GAO posts newly
released reports, testimony, and correspondence on its Web site. To have
GAO e-mail you a list of newly posted products every afternoon, go to
www.gao.gov and select "Subscribe to Updates."

Order by Mail or Phone 	The first copy of each printed report is free.
Additional copies are $2 each. A check or money order should be made out
to the Superintendent of Documents. GAO also accepts VISA and Mastercard.
Orders for 100 or more copies mailed to a single address are discounted 25
percent. Orders should be sent to:

U.S. Government Accountability Office 441 G Street NW, Room LM Washington,
D.C. 20548

To order by Phone: 	Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061

  To Report Fraud, Contact:

Waste, and Abuse in Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: [email protected] Programs Automated answering system: (800)
424-5454 or (202) 512-7470

Gloria Jarmon, Managing Director, [email protected] (202)
512-4400Congressional U.S. Government Accountability Office, 441 G Street
NW, Room 7125 Relations Washington, D.C. 20548

Public Affairs 	Paul Anderson, Managing Director, [email protected] (202)
512-4800 U.S. Government Accountability Office, 441 G Street NW, Room 7149
Washington, D.C. 20548

                           PRINTED ON RECYCLED PAPER
*** End of document. ***