The Market for Textbooks

The Market for Textbooks

By Linda, Rudmila, Taniko, and Xueqing

            As college students, we all know the importance of our textbooks.  In the market for textbooks, the college students buy books required for classes and the sellers are the publishers, production companies, second-hand booksellers, and student who no longer need their old textbooks.  Books on the same subject function as perfect substitutes, at least for us as long as they are usable.

            At the beginning of each semester, there are students rushing to the Odyssey Bookstore for their textbooks and they are forced to pay the, very high, market price.  In addition, towards the end of the semester, we end up with books stored under our beds, such as “Intermediate Microeconomics.”  Some of the students want to sell their books for some pocket money, or just to have space under their bed for next semester’s books.  However, they do not receive a profit when selling them back to the Odyssey or to the publishers because they sell them at the new market price, which is lower than what they originally paid for them. Some tech savvy students choose to re-sell their books online, where they have a little more control on the price they can demand. But why is it we get ourselves in such a situation? Why do the prices of our books fluctuate so much when we buy and sell? Of course there are some students, armed with their Microeconomic theory knowledge and insight that take advantage of the situation and make a profit out of it, but what about the others?

              In this blog, we are going to look into two periods of an academic year: the end of the fall semester and the beginning of the spring semester.  Because students no longer want to hold on to their books because they have completed their courses for fall semester, they become sellers in the market by selling their books, increasing the market supply of text books and sell their books into the market, increasing the market supply of books.  As shown in the graph, the supply curve will shift right, and causing the equilibrium to also shift.

            Then after winter break, students come back with a new demand for textbooks.  The students will flood into the market for textbook with a new list of textbooks for their new set of courses.  The students then the students are now the buyers of new textbooks at any given price. This increase in buyers causes the demand curve to shift right, therefore, creating a new equilibrium.  This new equilibrium increases the price from P2 to P3 and the quantity of equilibrium increases again.

             But what happens in between semesters? Although the prices of the books at the beginning of a semester are not necessarily higher than they were in the beginning of the previous semester, the demand and supply are relatively constant and lower than the two periods we mentioned above, which will give the buyers a lower price during the interim. To save money, it might be wise to buy the books you need for the next semester at the end of this semester.  This way, you are taking advantage of the increasing supply, and the lower prices.  With the same logic, you can sell your books when students look for new textbooks at the beginning of each semester which will possibly save you some money allow you to gain the full price you paid for the books the previous semester.

            However, due to the increase in modern technology, the market is evolving. Students have more options as to how to acquire their textbooks for their courses. For example, the emergence of e-books, kindle versions, Ebay, Amazon, and online downloads are so much easier to get.  The market is no longer the same as before when we could only buy books from publishers at the price they set up and this shows the influence of technology development of the demand and supply.

             

Shopping for products with MHC logo at Campus Store

Shopping for products with MHC logo at Campus Store

by Yixue, Munazza, and Maureen

“Thank you! Have a good day.” You say to the lovely lady at the cashier’s desk with a smile, before turning around and walking out of the Campus Store located at Blanchard Campus Center, with several shopping bags in your hand.

Wait a second, do all those sweatshirts, mugs, folders, and notebooks in your shopping bags have the Mount Holyoke logo on them?

Well, of course.  I know the Mount Holyoke logo is the main reason why you bought them and why you seem so delighted with your new purchases. As Mount Holyoke students, we all want our possessions to bear the Mount Holyoke logo. We love to wear our MoHo sweatshirts with pride and take our MoHo mugs down to M&Cs every night. The campus store at Blanchard may be rather highly priced, but we do not generally mind spending a bit more on items imprinted with the logo of Mount Holyoke, one of the leading educational institutions in the United States, one that we are all so proud to be part of. Not to mention these lovely items cannot be easily bought at any other places!

This uniqueness makes our Campus Store a monopoly in selling merchandise bearing the Mount Holyoke name. A firm becomes a monopoly when its products are unique in the market, with no close substitutes. Barriers to entry explain the existence of a monopoly. Ownership of an important resource, patent or government protection, and high cost of setting up a firm are three types of barriers to entry. So, what exactly makes our Campus Store a monopoly? The following words found on our school’s website will offer us more information.

“The Campus Store, located in Blanchard Campus Center, is operated by the Follett Corporation, a private company with bookstores on several College campuses in the East. The campus store carries a selection of paperback books, stationery supplies, and items of clothing, book bags, etc., many with the Mount Holyoke College insignia.” (link: http://www.mtholyoke.edu/hr/campus_store.html)

The Mount Holyoke College logo is the visual symbol of our college, which cannot be used by firms for commercial use without authorization. The logo serves as a patent in production and makes those products unique in the market.

A monopoly is demonstrated by a downward sloping demand curve, which means it can reduce output to raise prices. Demand behaviors of consumers will directly influence a monopolist’s behavior. But what if the demand curve is inelastic, just as the demand curves for products with Mount Holyoke logo at the Campus Store?

We all know how much we love those products with the MHC logo. Buying a sweatshirt with moho logo is one of the easiest ways to express our love for our college. Visitors on college tours would love to take home some postcards with amazing depictions of our scenic campus. Prospective students can hardly resist buying those adorable stuffed animals saying “Somebody from Mount Holyoke College loves you”. These products are unique to the Mount Holyoke Campus Store, and there are no substitutes for these goods available at any other place. For such goods with an inelastic demand curve, a large increase in price will only cause a small decrease in output. Imagine, if one day you look around the Campus Store and realize that the price of each item has increased, for example, 20 percent, will you still buy them? Wouldn’t you still want to keep something as a souvenir from your college life?

In terms of Economics, the Campus Store operated by the Follett Corporation is a monopoly, providing unique goods and acting as the price setter. As Mount Holyoke students, however, the products available at the Campus store behold emotional value to us and the monopolistic position does not deter us from making purchases. The value of the logo means much more than the cost of printing them on items. We treasure what the logo stands for: reputation, the MHC spirit and culture, and we do not at all mind paying little bit more for this.

Just for fun: Here is more information about our MHC logo if you are interested in it. http://www.mtholyoke.edu/communications/docs/communications/visual_identity.pdf

Selling a product at a loss?

Why would a firm sell a product for a loss? Cheap Talk discusses Amazon's strategy.

Tragedy of the (Mount Holyoke College) Commons

Tragedy of the (Mount Holyoke College) Commons

by Jenna, Auste, Regina, and Gabriela

The clock reads 4:32AM in glaring neon numbers. It's either late night or early morning,
depending on your interpretation.


Not that you care, really.


You've just woken up from a deep sleep to attend to the demands of your tireless bladder.
Besides, you're more worried about being able to successfully navigate the obstacle course of
your room without breaking anything or yourself.


Finally, you reach the door to your room and stumble out into the hallway, bleary-eyed and
shuffling zombie-like towards the unisex restroom.


Flicking on the lights, it takes a while for your eyes to adjust, and even longer for you to
comprehend the state of the bathroom.


The first thing you notice is the smell-as if pop-rocks, soda and beer had gone through a magical
ride through the digestive tract only to come out again the way it entered. Stalls 1 through 3 are
vomit-covered and stall 4 has an occupant.


Although technically speaking, stalls 1, 2 and 3 are usable, in reality, who'd want to? Stall 5 it is.


As you sit, thinking, eyes trained on the 'News Flush' (only 1 month out-of-date, and so well-read
you can ace an exam on it), you realize that for the rest of the weekend the entire second floor
will be using stall 5 and (potentially) stall 4.


It's an all too sobering thought.


Damn Vegas Night.

Let's face it. Although this slice of life vignette deals with the aftermath of Vegas Night, the
bathrooms and kitchenettes on campus are a classic example of the tragedy of the commons.

The tragedy of the common refers to a hypothetical situation where a commonly-held plot of
grass-covered land is used by everyone in the community for the grazing of cattle. Each member
of the community acts rationally and attempts to maximize their self-interest by putting their
cattle to pasture only on the common land. If one small parcel of land is supposed to feed a
growing population of cattle in the community, eventually the land will be barren due to the
overexploitation of the natural resource in question, grass.

In other words, the tragedy of the commons occurs because everyone only thinks of themselves
to the long-term detriment of the community.

In terms of the kitchenette and bathrooms, the tragedy of the commons happens less
noticeable on a daily basis, more noticeably on a weekly basis and most noticeably on a big
party night.

There's always 'that person' or 'those people' who has/have a digusting habit (whether it be
not cleaning up their hair from the drains, to leaving spilled milk all over the kitchenette floor to
vomiting everywhere regardless of hygiene).

So, the next time we run across a gross situation in any of the common areas, remember: it's not
a matter of gross or selfish individuals behaving in a manner that bespeaks of a scary sense of
self-entitlement, it's actually a matter of people behaving rationally.

But as much sense as this makes on a logical level, it is so much harder on an emotional one to
reconcile that the vomit in the sink is just a consequence of rational human behavior.

Markets for Maple Syrup

Since we live in Maple Syrup land, check out the article over at The Atlantic.

Marginal Costs!

Freakonomics discusses the pricing strategy of omelets, focusing on the marginal cost!

The Price of Tickets to Hampshire Halloween

The Price of Tickets to Hampshire Halloween

by Mindan, Yanni, Jiayi, and Syeda

The price of tickets to Hampshire Halloween was $20 this year. Given how we are in a perpetual financial crisis given our very limited sources of income as students, it seems to us that the tickets are over-priced. So for the sake of this article, assume that $20 is above the equilibrium market price for Hampshire Halloween tickets. It is reasonable to think that colleges would have two reasons to over-price tickets. Firstly, to lower the number of party-goers to sustainable levels so that there can be better management. Secondly, to raise revenue by charging a higher price (this is only true if demand is inelastic, which we claim it is) to a small number of more financially-solvent students. In this economic explication, we will give reasons to show that over-pricing possibly defeats both aims.

The first purpose is defeated because they did not have enough mechanisms to prevent a substantial number of students from attending the party without buying tickets. First, there were surmountable physical barriers to entering the party. Desperate party-goers could go to Hampshire before the fences were put up at 4:30 pm and simply stall for time by studying or chatting with friends until the party began. They could also walk across the large field from Atkins Market to the area of Hampshire college campus where most of the residential dorms are. Second, the wrist bands which were provided to party-goers were such that nearly perfect substitutes were available. They were a bright neon pick (like most handouts from health centers or counseling services) and they did not even have any distinguishable writing on them. For adventurous students with the ability to take calculated risks, this was a pretty fun challenge to overcome. Reasonably assuming there is a significant number of such students in the Five College area (the colleges are competitive) and a significant subset of those students do not have the financial means to attend the party, there were probably a lot of people who crashed the Hampshire Halloween party! So, the crowd would be larger than what the management thought to be sustainable levels and this is portrayed by the fact that buses within the Five College area ran horribly late on the night of the party, ran a few trips outside of schedule,  and they were definitely over-stuffed with passengers. Slight digression: one of our teammates had to wait for an hour in the freezing cold at a pitch-dark, desolate area for the last bus from Amherst to Mount Holyoke, which was supposed to arrive at 1:48 am but finally showed up at 2:35 am. The night was chilly and she caught a terrible cold afterwards.

The second purpose is defeated by simply hypothesizing a possible Laffer curve for the Hampshire Halloween market. We believe that the $20 price is such that the revenue is not maximized. Given the popularity of this particular event, most college students feel that it is an experience they ought to have at least once as a student of the Valley, even if they usually do not party. So it makes the demand somewhat inelastic when compared to other college parties. So possibly the only reason preventing college students from attending Hampshire Halloween would be the ticket prices. Now how many students can afford to pay $20? Thinking of the wage rate, this equals 2.5 hours of work for most students and the maximum work hour is 10 and median work hour is 8. Given how all other college parties (except for Vegas Night), charge about $5 maximum, this event is just 4 times more expensive! Even if it retains more students than the average parties would after a price hike due to the relative price inelasticity, it is reasonable to assume that a much greater number of students would have attended if the price was lower. Even though we cannot derive the revenue maximization price, we would bet on the fact that revenue would be maximized if the price was around $10, if not $5.

There is a strong case to argue then that the Hampshire Halloween ticket prices should be lowered. This would give authorities and management a more accurate estimation of the number of party-goers as a much lower number would be tempted to risk sneaking into the party. This will allow them to provide better services so that people, like our teammate, do not have to suffer for things like a bus ride back home. Also, lower prices could potentially provide the greater revenue to buy additional resources for the larger party-crowd. Everyone seems to be better off. This event is a great example for illustrating the desirability of market equilibrium (prices and quantity) as it is only then that society is most efficient, with no economic losses. When prices are forced up, there is necessarily a lower consumer surplus, deadweight loss and loss of welfare. We rest our case.