Reference no: EM133155575

The Economics and Ethics of Textbook Pricing Background: (Case Study 1)

Several students were gathered around the section of the College Bookstore where business textbooks were shelved. Martin Tremayne heard comments about the outrageous and unethical prices being charged for the required books and that the cruel publishers were profiteering at the mercy of students.

Martin decided to delay the purchase of the Business Ethics book he had to come to get. Later over a coffee, Martin reflected about the incident. He had enough money with him to purchase the book but didn't want to do so in front of his angry colleagues. Martin was having a good time at college. He was in a co-operative program and the work terms that paid most of his expenses. He lived at home, but had car payments and maintenance expenses. He had taken a couple of trips to the Caribbean while at college and attended several concerts in Toronto and New York. Overall, he has enjoyed his time at college. Martin decided to find out about the textbook publishing industry and what caused the high prices.

The industry was unusual in that textbooks were selected by professors who did not have to purchase them, that is, students were captive consumers in that they are required to purchase the book. The publishers market to professors and most selected the best textbook to meet the requirements for the course and seldom considered the price. According to studies, the cost of textbooks had increased about four times faster than the Consumer Price Index resulting in many universities and colleges becoming concerned about possible overpricing. On average, students spent between $500 and $1,000 per semester on textbooks and other course materials.

The publishers claimed that textbook publishing was competitive and that they were not profiteering. To ensure quality, textbooks were subject to an extensive reviewing process often involving 30 reviews. Textbooks were published on high quality paper, unlike trade publications, and involved sophisticated design with colour, graphs, indices, and photos. Publishers developed a large selection of books, not all of which were successful and some lose money. In addition, publishers had to provide instructor's manuals, lecture slides, test banks, and online platforms for each book. The publishers received 80 per cent of the retail price with the bookstores receiving the remainder.

Universities had responded in several ways. They suggested that professors change textbooks and editions only when absolutely necessary so that there was a secondhand market for the books. Some encouraged professors to assign books from the Open Textbook Library or Project Gutenberg where books were available for free online. The books were written by academics and were adequate for some courses. The use of other Internet materials was encouraged but quality control was a problem. Other universities started renting textbooks, most book stores purchased textbooks for resale, and sometimes several copies were put on reserve in the library. Some textbooks were published as digital copies which somewhat cost less, but these editions had expiration dates, cannot be copied and printing is limited. Students may have ereaders, but some still preferred the paper edition.

Students complained that new editions were published forcing them to buy new books despite minor changes, and often professors sometimes only used a small portion of the book. With increasing tuition fees and living expenses, students were accumulating increasing amounts of debt. The more money spent on textbooks meant less for food, transport, health, and leisure. Martin wondered whether to go back and purchase the textbook or investigate other ways to obtain it.

Questions:

1. What fundamentals of capitalism are relevant to this Case?

2. Identify the stakeholders involved and what are the issues along the supply chain for textbooks? 3. Are textbooks too expensive? Is money spent on textbooks a legitimate expense in the educational system?

4. Identify and explain which ethical theories / principles apply to this case and why? (Minimum of two)

5. Explain which ethical concepts apply to this case and why? (Minimum of two)