by Jurgen Brauer, January 2003
Copyright: J. Brauer. No reproduction without permission.

A monopolist is the only seller of an item for which there are neither suitable substitutes nor any effective competition. A monopolist thus possesses pricing power over buyers that competitive firms do not possess. Monopolists can therefore charge prices higher than those that would prevail if there were competition. No wonder that companies often lobby government for regulations that keep competitors out of the market.

Here is an example that affects many college campuses today. Textbook publishers provide copies of textbooks to professors free of charge, hoping the professor will select theirs as required reading for the class. This means that I am inundated with unsolicited, but "free" textbooks. I select one, and the remainder sit on the bookshelf. Then, a bevy of independent book-buyers comes along, buying up the unused textbooks. They, in turn, sell them to wholesalers who recycle the books back into the book market at some other college or university.

So far, so good. There is competition for the unused books on my shelf. Presumably I get top dollars because there is competition for my books. But increasingly campus bookstores and administrators have issued "regulations" according to which independent book buyers are not permitted on campus anymore. Now campus bookstores themselves buy up professors' sample textbooks. Being the only remaining buyer, the bookstore can offer lower prices and get away with it, unless the professor wants to incur the extra hassle of selling the books off-campus and unless the independent book buyers can afford to incur the extra cost of dealing with professors off-campus.

If the economics is clear enough, let us think about the ethics. Let me start with one of the harder questions. The bookstore might argue that if it can purchase books at a lower price, this ultimately benefits students. This is complicated because the books I sell are those that are not used on campus, and so the store in turn must sell them to a book wholesaler. The money it makes from the wholesaler might then subsidize its operations which, perhaps, results in reduced mark-ups on the books the store's customers (the students) actually do buy. I don't know if that is so, but for the moment let us charitably assume that it is. There then still remains the question: why should any professor subsidize students in this back-handed way? If  professors wish to be generous, let them be generous. But why should a professor's choice to whom to donate be made for that professor by granting monopsony rights to the campus bookstore?

Think about this from another point of view. Suppose a competitive independent book buyer offers $100 for four unused textbooks (at $25 a piece). And suppose the monopsonistic bookstore offers only $80 (at $20 a piece). I am losing $20 and thereby have "donated" it to my college. But why should the bookstore prescribe that I donate to the campus? What if I prefer to give the $20 to some other cause? The amounts, incidentally, may not be small: $20 times 200 or so faculty members twice a year runs to $8,000. Now, multiply this by the multitude of campuses that are increasingly fond of this practice and we are talking about millions of dollars!

So the first question of ethics I have is this: what is the rule of ethics by which a professor's freedom of choice to whome to donate (or even to keep the money him/herself) is restricted in this arbitrary, back-handed fashion? Here's a second ethics question: banning independent book buyers from campus deprives them of their livelihood and forces them into alternative occupations against their own choice. By what rule of ethics does one justify that? A third ethics question: we know that restrictions in any market encourages illegal activity to circumvent the restriction (e.g., taxes on cigarettes encourages a black market for cigarettes). So it is no surprise that I have seen my share of "illegal" book buyers on campus. Why would any campus -- paragon of public service -- want to encourage "illegal," or "black market" activity? And for good measure, here's a fourth ethics question: what if one can show that students actually do NOT benefit at all? I think I can show this but the argument gets rather more intricate. For instance, economic theory predicts not only lower prices but also predicts that fewer professors will part with their sample books -- because of the lower price -- so that fewer textbooks are recycled. This means that more students nation-wide must buy higher-priced new books.

We see that economics and ethics are more closely related than one might have thought.