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Antitrust Monopolization

The Assault on the Printed Page

When the New York Journal cabled Mark Twain in London on June 2, 1897 to inquire whether he was gravely ill, Twain famously replied that the reports of his death were greatly exaggerated.

William Randolph Hearst, the Journal’s publisher, could have saved his scoop by having Twain shot on the spot. Fortunately, he didn’t, and we got another 13 years and “Captain Stormfield’s Visit to Heaven” out of the great humorist.

Publishers of university textbooks wouldn’t have been so patient.

Reports of the demise of the printed page, popular since the dawn of the Internet, have turned out to be greatly exaggerated: sales of print books are surging.

So textbook publishers have decided to kill the printed page themselves.

According to a recent antitrust class action brought by university students, all the big names in textbook publishing have been working together to funnel cash to universities in exchange for commitments to assign online-only textbooks to students instead of print books.

It’s working: more than 1,000 universities have agreed to assign publishers’ online-only editions, millions of students have already been forced to purchase them, and publishers are preparing to phase out print textbooks entirely.

Studies show that students, like most readers, prefer the printed page, and textbook companies have seemingly had no problem jacking prices up to astronomical levels in recent years, with the average price of textbook in a core undergraduate course like statistics retailing for more than $300 dollars. So what do publishers have to gain from their assault on the printed page?

A lot, it turns out.

The Rise and Fall of the Internet Used Textbook Market

Eliminating print allows publishers to wipe out competitors that have depressed sales for years.

Before the Internet, textbook publishers had little to fear from the used book market, apart from an occasional copy with a yellow “Used” sticker on the spine that would make its way onto the shelf of a university bookstore.

The Internet changed that, by creating a national–indeed, international–market for used textbooks. Sales volumes of new textbooks plummeted, as students could now pass books along to each other from semester to semester through the medium of online booksellers.

For years, publishers more than offset their losses by jacking up new book prices, but it turns out that there is a limit even to what students with no-questions-asked access to loans are willing to spend for a new textbook.

Indeed, just excessive tax increases can reduce tax revenues, excessive textbook price increases reduce profits as students start locating bootleg copies on the Internet or shaming their professors into distributing textbook pdfs in violation of copyright rules.

Publishers tried to stem the tide by accelerating the rate at which they put out new textbook editions, even–and rather humorously–in such timeless subjects as basic physics, in order to drive used books to obsolescence and force students to come back to the market for new books.

It didn’t work, which is not to say that it put the major textbook publishers in jeopardy of closing up shop. Textbooks remain the most profitable books in publishing. But publishers preferred to go back to minting money at the old rate. And that’s where online-only books come in.

The Supreme Court has held as recently as 2013 that publishers cannot prohibit students from reselling their textbooks. But it is a staple of Internet law that online publishers can prohibit users from reselling access codes for online material. By killing the printed page, publishers kill the used book market.

The Antitrust Case against the Publishers

There was just one wrinkle that publishers couldn’t iron out on their own: getting universities to assign online-only books. To achieve that, publishers had to buy off the universities, and violate the antitrust laws.

Paying someone to deny your competitors an essential input is called “exclusive dealing” in antitrust lingo, and it’s illegal if the perpetrators have market power and the denial does not help them improve their own products.

But that’s just what publishers do when they pay universities to assign online-only books.

A university’s textbook choices are an essential input into the used book business. If schools don’t assign print books, used book sellers have no textbooks to resell in competition with publishers’ new books.

With used book sellers frozen out of the market, publishers end up with 100% of the textbook market, far in excess of the market shares generally required by the courts to establish market power.

And students end up blinking into the glare of an inferior product.

So this should be an easy antitrust case. But before an increasingly pro-business judiciary, it is anyone’s guess whether the courts will actually get this one right.

From Bad to Worse in the Information Age

The rise of the Internet used book market twenty years ago was itself a disaster for those who love books.

Back in the 1990s, biblioagnostics–those who were indifferent to studying off a new book or a used book–subsidized the bibliophiles who much preferred new books, because the ‘agnostics had to buy new books they didn’t want for lack of a robust used book market. Sales to ‘agnostics kept prices down, enabling bibliophiles to buy new books they could not otherwise afford.

In freeing ‘agnostics to save their money and buy used books instead, the Internet put an end to that subsidy, forcing bibliophiles who could not afford $300 for a new edition to put up with tattered, highlighter-marred tomes.

But if publishers now succeed at killing the printed page, everyone will suffer, not just bibliophiles. For the other thing publishers have to gain from the move to online is the demise of the university itself.

The Assault on the Printed Page Is an Assault on the University

Publishers sell more than just online textbooks. They sell everything a school needs for online learning, offering tests, quizzes, lecture notes, and PowerPoint slides to go along with the textbooks they peddle. And they hire university faculty members to teach instructors how to teach their materials.

When universities accept cash from the publishers in exchange for moving books online, and allow their faculties to indulge in the teaching aids that publishers offer as a perk to make the switch, schools effectively outsource instruction to publishers.

It is not hard to imagine publishers one day cutting out the middleman by offering courses and degrees directly to students. That would wipe out virtually all academic scholarship, save for the sponsored research common in the hard sciences.

Tuition covers about half the cost of instruction at universities, with the difference coming from subsidies. But faculty spend up to half of their putative instructional time producing scholarship, which means that student tuition dollars mostly pay for research, not teaching.

The publishers, however, won’t get any subsidies if they take over the instructional function, so the fees they will charge students will go entirely to instruction. But unless universities are able to make a strong case for conducting scholarship without teaching, which seems unlikely, the subsidies will dry up, and so there will be no money, either tuition or subsidies, left for scholarship.

Universities have been able to force students to pay for scholarship because university education is an oligopoly: brand loyalty–universities call it reputation–makes entry into the market by startups almost impossible, allowing schools to choose their prices without fear of competition.

But it is a virtuous oligopoly that subsidizes a public service, much the way the local advertising monopolies enjoyed by newspapers for most of the 20th century subsidized investigative reporting that was not strictly necessary to attract readers (tabloid headlines suffice for that).

The Internet has already come for newspapers, which lack the extreme brand loyalty enjoyed by universities, but one day it will come for universities too.

If their complicity in the assault on the printed page is any indication, they won’t know what hit them.

(I thank Chris Bradley for comments on a draft of this post.)

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