Academic journal article Journal of Business and Accounting

Competition Increases Prices: The Case of Intermediate Accounting Textbooks

Academic journal article Journal of Business and Accounting

Competition Increases Prices: The Case of Intermediate Accounting Textbooks

Article excerpt

ABSTRACT

While we learn in our economics classes that competition drives down prices, we experience a different reality when we look at the prices of accounting textbooks. The textbook market, including the market for intermediate accounting textbooks, is certainly not described by a supply/demand curve for a situation with perfect competition. Because students are the consumers of the texts but the faculty are choosing the required textbook, the demand function is not driven by the consumers. Because faculty members can ask for more bells and whistles to accompany their texts without directly paying for these improvements, publishers compete by adding more bells and whistles. Because of this situation, the competition has caused an increase in the price of textbooks. This paper is a preliminary exploration into the factors that lead to this reality.

INTRODUCTION

Prices for textbooks for college and university classes have been steadily rising for many years. In most cases they are rising at rates well above the inflation rate, competing with the rise in tuition costs (GAO, 2005).

Students and parents are experiencing sticker shock when it comes to college textbooks. After assessing family resources, applying for financial aid, and often taking out additional public and private loans, students enroll in college, select courses, and go about the process of purchasing required textbooks and other course materials. Students and parents often pay the textbook bill out of pocket. What they see is often out of line with the price of books in other venues. Since the textbook bill comes last, it can strain or exceed remaining financial resources. In such cases, textbook expenses can become the final barrier to college (ACSFA, 2007, 2).

A recent article in USA TODAY included an anecdote of a senior majoring in accounting who could not afford the cost of accounting textbooks. He got by in some of his classes by participating in study groups and attending the professors' lectures (Yu, 2012). While many of us have heard stories of students buying a textbook required for a class only to find out that the professor did not use it much or expect the students to do so either, most textbooks required for accounting classes are an integral part of the class, and a student would be at a definite disadvantage in not having access to the textbook material.

Accounting textbooks in general, and intermediate accounting textbooks specifically, are no exception to the increase in prices. Prices continue to rise and students look for alternative ways to obtain the books less expensively. Interestingly, the rise in textbook prices has come during a period of time when textbook publishers are experiencing extreme competition. Over the last 20 years, many publishers have been involved in mergers and acquisitions in an attempt to survive the competitive atmosphere (GAO, 2005).

While we leam in our economics classes that competition drives down prices, we experience a different reality when we look at the prices of accounting textbooks. Even though intermediate accounting textbooks are used for two semesters, sometimes three, the purchase price is surprisingly high. The remainder of this paper is a preliminary exploration into the factors that lead to this reality.

ECONOMIC MODELS AND THE TEXTBOOK MARKET

In a situation with perfect competition involving many suppliers and many consumers, we know the supply curve is upward sloping and the demand curve is downward sloping. As the price increases, the quantity supplied also increases. As the price decreases, the quantity demanded increases. The intersection of the supply and demand curves will determine the quantity and the price for specific products. Theoretically, competition will drive out inefficient producers, and rationality will discourage consumers from paying more than the equilibrium price.

Many other economic models exist to explain behavior in monopoly situations, duopoly situations, or other situations in which perfect competition does not exist. …

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