Date of Award

Spring 1-1-2013

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

First Advisor

Donald Waldman

Second Advisor

Scott Savage

Third Advisor

Yongmin Chen

Fourth Advisor

Jin-Hyuk Kim

Fifth Advisor

Laura Kornish

Abstract

This dissertation develops and estimates a model of switching costs in the market for college textbooks. First, in a theoretical setting, this paper characterizes the professor’s adoption decision, which includes a trade-off between time and course quality. The professor faces a time cost when he switches textbooks. This switching cost leads to state dependence and adoptions of textbooks that are sub-optimal for students. In a two-period duopoly model, switching costs are shown to lead to higher prices and shorter revision cycles. Predictions of the theoretical model are tested empirically using a unique 30-semester history of professors’ textbook adoptions. Using professors teaching the course for the first time as a counterfactual, switching costs are identified to be large and significant in a random utility model that allows for observed and unobserved professor preference heterogeneity. Results show both book-specific and edition-specific switching costs affect adoption decisions in directions and magnitudes consistent with the theoretical model. A final empirical analysis identifies heterogeneous switching costs across textbooks and shows switching cost magnitudes are positively correlated with textbook prices, suggesting switching costs may dampen competition. In my sample, switching costs account for as much as 9% of textbook prices; however, there is no empirical evidence of correlation between switching costs and revision cycles.

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