March 14, 2009

Why the prices of textbooks in U. S. are so much higher than in Hong Kong?

Yesterday Elvira raised this question to me. In Hong Kong, we are blessed to have those international version textbooks costing around 300 Hong Kong Dollars each, substantially lower than the same textbooks sold in U. S. Exchange students from the States here are often surprised at the price difference.

As I googled on the topic, a paper written by Cabolis, Clerides, Ioannou, and Senft bumped into me. According to their research based on comparative data from book markets in U.S., Britain, and Canada, the price differences do not result from cost differences, but different market demands.

Textbooks are adopted by professors but paid for by students. This gives rise to an agency problem: one individual (professor) is acting on behalf of another (the student) without bearing any cost relating to his action. If one is willing to accept that professors in the US care less about how much students pay than professors elsewhere, then agency might explain observed price differentials.

Actually I have even encountered professors in my university saying that, only if you are rich enough to comfortably afford the textbook, there is no need to buy it.

Besides, copyright enforcement is also pointed out to be a possible explanation. I am not familiar with the situation in the three concerned countries in the research, but in Hong Kong, it is very common for college students to use photo-copied textbooks.

Although the data cited in the paper does not support the hypothesis of secondhand market playing a significant role, it could be an explanation to the difference between Hong Kong and U. S. According to the articles I read on the topic, secondhand markets for textbooks are very popular and common in the States; however, in Hong Kong, as I experienced, very few students would sell their textbooks after use (which may be a little more common, though, among the mainland China student community in Hong Kong universities). When buying a new textbook, if the student has the expectation of recovering part of the price paid after the use of a semester, he or she probably would care less about the price, thus pulling a higher markup in price.

Of course the tuition difference also explains. A typical three year college education (in the British system, equivalent to a four-year undergraduate education in U. S.) in Hong Kong would roughly cost only that of one year in America. When paying some twenty thousand U. S. Dollars for their annual education cost, a few hundred dollars for textbooks would be marginal towards American students.

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