Why E-Book Sellers Should Account for the Resale Value of Physical Books when Pricing Textbooks

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Despite the current swell of trendy enthusiasm for e-book readers (e.g., the Amazon Kindle, Barnes & Noble Nook, Sony Reader, and iPad), companies that have largely failed to account for the resale value of physical books in their pricing of electronic versions of textbooks. Consequently, e-book versions of textbooks are selling much more slowly than they could.

Why Students Keep Buying Physical Textbooks Instead of E-Books

In my experience, most (as opposed to electronic versions) resell these books (usually on-line at eBay, Amazon.com, or a similar site). For example, a student might be forced to pay $180 for a brand new edition of a textbook, but he/she knows that the book can be resold at the end of the semester for $100 or so (including sales fees). The actual cost of the book, therefore, is $80, as long as it remains in good condition.

Currently, the price of e-book versions of textbooks is very close to the cost of brand new physical books (and usually more than the used price for physical books). So for example, while the new physical book might cost $180 and the e-book version might cost $140.

Even if a student already owns an e-book reader, he/she would probably rather buy a new textbook and then resell it (thereby using our hypothetical numbers) than buy an e-book version that cannot be resold (for $140). Using our hypothetical numbers, the student is $60 better off if he/she buys a physical copy of the textbook. And this is without even accounting for the fact that most textbooks are not brand new editions, and that used prices for textbooks are generally less than the e-book price.

How E-Book Sellers Can Account for the Resale Price of Physical Textbooks When Pricing Textbooks

It should be fairly simple for e-book sellers to price their students. Using the numbers in our hypothetical situation above (i.e., $180 for a physical textbook, $140 for the e-book version, and $100 of resale value for the physical textbook), we conclude that an e-book version of the textbook must be priced at $80 or less (i.e., the actual cost to a student who buys a new textbook and then resells it at the end of the semester) to appeal to a

Over time, the optimal price for an e-book version of a textbook will decline. Used copies of the physical book will start being sold, reducing the cost for a student to own a physical copy for a semester. For example, a year after its release, our $180 physical textbook might be selling at a used price of $60. A student might be able to buy the book for $60 and resell it for $30, thereby absorbing a cost of only $30. In that case, the e-book version is only appealing if it costs $30 or less.

Publishers of e-book readers should be able to price their products dynamically (i.e., change the price over time in response to market conditions). Because there is virtually no variable cost to producing an e-book (i.e., after the initial cost of producing the book, allowing people to download copies costs almost nothing), publishers can still make money on e-books, even if the prices become extremely low.

Conclusions About the Pricing of E-Book Versions of Textbooks

As e-book readers like the Kindle, Sony Reader, Barnes & Noble Nook, and Apple iPad become more popular and widely used, the number of able to use e-books will increase. To reach this emerging body of consumers, textbook publishers need to understand the consumers’ financial alternatives and price e-books accordingly.