A common gripe among college students is the overwhelmingly high price of textbooks. At the start of each quarter, most students will dole several hundred dollars on textbooks. Complaints of being gouged on price run rampant. In addition to meter maids and tow trucks, one common enemy all students share is the daunted student bookstore.
Unless you happen to be me of course. The bookstore was my best friend.
In my case, the Columbus State Community College bookstore has helped make my college experience a more pleasurable one. Aside from funding numerous vacations - it has allowed me to enjoy a standard of living that is unknown to most college students.
How does economics make this possible? What market forces are empowering me to capture such an outlandish surplus?
It started when I was purchasing textbooks for a class of my own. The required textbook, "Who Built America?" (circa year 2000...more on that soon) was a startling $3.00 through an online outlet. Being both curious and enterprizing, I purchased 6 copies - with the intent of selling them at textbook buyback.
When I recieved back $27.00 for each book, a 9x ROI - I knew I was onto something much larger. With much success, I soon invested thousands of dollars into the depreciating asset that is a used textbook. I had just recognized an enormous inefficiency produced by this highly fragmented market.
Almost a scenario out of the textbooks themselves.
The first observation I soon made was that all profitable textbooks were at least 3 years old.
When a textbook is discontinued at a given school, demand decreases significantly - if not eliminated altogether. When that same textbook is still current at another school, demand remains stable - along with prices. The more schools with lowered demand on a book means a greater amount of cheap textbooks that will abound. If CSCC keeps that title instead of updating to a newer edition - it will usually translate into a profitable book.
A book that is outdated at 99/100 schools means there will be an enormous opportunity to capture a major surplus at the 1 school where the book is still current.
The rest is academic arbitrage.
The surplus I was capturing was the variation between fragmented textbook markets. The market for textbooks at the University of Arizona or Boston University is far different than the one at CSCC - or even Ohio State for that matter.
Simply put, I profited from buying textbooks from schools with low demand and selling to schools with high demand.
Now that we have determined that the market bears opportunity - lets examine the factors behind it:
1) Centrally Planned Markets - Each university is a submarket that is directed by central planning (the university) as opposed to consumer preferences. Customers are forced to buy required textbooks rather than the textbooks of their choice. Once a textbook decision has been made - all consumer behavior is predictable. Anything that is economically ineffecient - such as this - produces a potential for profiting.
2) Highly Fragmented Markets - This is an offshoot of #1. Since each university is both a controlled and unique sub-market, textbook demand differs considerably. In most markets, there are similar demands which promotes efficiency. The opposite is true here, which is why arbitrage is possible by buying from markets with low demand for book A and selling it to a market with high demand for it.
In the past year, I have sold hundreds of books to the Columbus State bookstore - all repositioned from other markets where demand for the same commodity was dismal. In some cases, books could be purchased for $20 from low-demand markets and sold for $70 in high demand markets.
Since CSCC is not as aggressive as Ohio State and other major schools in updating book editions, it set the stage for the incredible opportunity. There is one instance where I noticed that Ohio State used a newer edition for the same book that had provided much profit at Columbus State.
What I did was beneficial to the CSCC bookstore too. When I purchased books in large quantities from online outlets, the price for that title would increase - giving students more reason to buy from them. The reason they could not do this themselves was due to contractual obligations to their wholesaler.
Next week college will end along with the incredible memories of my CSCC bookstore days. I will move onto more challenging enterprises. However, I will never forget the most valuable lessons I learned in college - through Textbook Economics.
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Nice story! I have a couple of questions.
ReplyDeleteIt looks like the Columbus State bookstore has been the only store that you sold to, was that the case?
Didn't it take a lot of time to gather the information you needed as to find schools that discontinued using a certain textbook? What "system" did you use getting this information?
Also how often did it happen that you bought a lot of copies of a certain book only to find out that the CSCC bookstore didn't want to buy it from you since CSCC had updated to a newer edition or didn't plan on teaching that book anymore?
Did you notice a significant drop in prices of a given textbook at a certain location once the university at that location dropped the textbook?
As for my personal experience in buying textbooks for college I started out by buying all the required textbooks only to find out that I didn't use some of them at all or very little. So by my fourth semester I only bought the textbooks I absolutely needed. I ended buying 2 textbooks and borrowing 1 from a friend that had it for the test and then not buying the book for the last 2 courses. That surely saved me a lot of money I used on better things.
Good questions...seriously.
ReplyDeletePlease understand that I would never divulge any of this if I wasn't graduating next week and leaving Ohio.
Since this is the last quarter I plan to be doing this, I can discuss it a little bit...
The truth is that I did lose on some books in the beginning. Just like anything, there is a learning curve. The research is definately the toughest component, but it pays dividends once completed.
But I learned to win despite my losses.
Now that I have been doing this a little over a year, I have learned how to identify good books right off the bat.
Once in a while, I will still lose a little $ when an unscrupulous seller sends me an instructor's edition, but these are scattered instances.
Yes, CSCC is the only store I deal with. I tried Ohio State and Otterbein briefly, but found that CSCC provided the best circumstances for what I'm doing.
A large publishing company will target Ohio State to buy newer editions - it is one of the largest accounts any publisher has. Because of this, Ohio State was not conducive to my model - despite its size.
CSCC, on the other hand, stocked older edition books where a large profit margin could be made. Currently, I am selling many copies of a certain title for $90 that can be purchased online for $20. Another book, although less popular, sells back for $85 and is purchased for $10. I would be hard pressed to find such textbooks at Ohio State - because the books are updated often, there is not enough time for their resale price to drop for margins to be profitable.
Because I have kept sales records from past quarters, I now buy large quantities of books when a price is optimal. At first, it was frustrating to sell 4 of a given title in a day and be sold out - when 5 more could have been bought. I'd rather overbuy than be undersold.
Consider the math: A book is bought at $30 and sold at $90. For simplicity, I can choose to buy 5 copies or 10. Let's suppose that I know for sure that 5 will sell and have a 50% of selling each thereafter...
If I buy 5 and 10 could have been sold, my economic loss is $60 per book. Although I didn't actually lose money, I lost the opportunity to make $60 x 5 books = $300.
Had I bought 10 when only 5 were being purchased, I would only lose $30 per book x 5 for a total of $150. The excess could be re-sold online, further limiting losses.
This is why I would always be overbought than undersold. Of course, the math changes with the given margin.
When I started, I was selling roughly 50-60 books per quarter. Now that I understand the business better, Ill typically offload over 100 per quarter.
I am doing this by eliminating these "missed opportunities."
Finally - yes, if a university discontinues a book, price falls. It has to. If no one at the university has a demand for the book, then it needs to be sold to a place with higher demand.
This is how the internet aggregates the demands - it serves as an equilibrium point. When a CSCC book is being bought for 50% of MSRP and equlibrium price is %20 (due to lower demand elsewhere)...profit is possible.
Anyway, I figured this would be a nice post - applying economics to first-hand experiences.
While economics classes did not teach me how to fight in the "trenches" so to speak, it certainly provided good parameters for some strategic decisions.
This seems to be an interesting way to make money. I find it fascinating that the bookstore didn't care that you were doing this, I would assume that they would know what you were doing when you would sell back multiple copies of the same book.
ReplyDeleteOne question I have is where did you purchase the books. I would have to assume somewhere where you could purchase multiple copies at one time to bring the cost down and to increase your revenue. I agree with you that you would rather be oversuppled than undersuppled. The opportunity cost is too great and it is really easy to get rid of the books online if you are not able to sell them back to the bookstore.
this is a really cool way that you came up with to support your college career. what interests me is that why the book store kept buying the books you sold them. if you kept selling them to me, i would have thought your obtaining them in a illegal way, not that i really think that. but it would be really suspicious. some guy walking in every so often with 10 copies of the same book. but, hey, if no one cares, then what the heck. as long as it keeps making you profit, keep doing it.
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