市場競爭研究

Consumer Council - Study of Market Practice in the Textbook Industry (Full Report) (30 March 1999)

Executive Summary
( Chinese / English)		Appendix 1
(Chinese only)		Appendix 2
(Chinese only)		Appendix 3
(Chinese only)

  1. This paper reports findings of the Consumer Council's study into market practices in the textbook industry. The Council has also proposed a number of recommendations in the light of the findings with a view to enhancing the efficient operation of the textbook industry.

BACKGROUND

  1. The study was conducted in response to a request expressed by the LegCo Panel on Education, regarding an allegation of a standard discount rate for the sale of textbooks, and the impact on parents of exorbitant textbook prices. During the course of the study, an additional allegation was made that publishers' donations of teaching equipment or other gifts to schools also impacted on the price of school textbooks. This practice has also been examined in the study.
  2. The issues identified for consideration were:
  • to what extent is the market practice of imposing a standard discount rate by booksellers affecting market competitiveness;
  • to what extent is the practice by publishers of offering incentives to schools impairing market contestability; and
  • what if any detrimental effects to the welfare of consumers/ schools arise from the above market practices.
  1. To gather information from market participants at different levels in the textbook industry, the Council conducted three separate surveys with textbook publishers, booksellers and schools in the period of August - October 1998. Survey results are annexed to the paper (Annexes 1 - 3, Chinese version only). The Council also held in-depth interviews with representatives from the Hong Kong Professional Teachers' Union, the Anglo-Chinese Textbook Publishers Organisation, the Hong Kong Educational Publishers Association, and the Educational Booksellers' Association, and sought information from the Education Department. The survey results and the feedback from these parties form the core analysis of the paper.
  2. This paper is limited to a study into the market practice of a standard discount rate and the offer of incentives in the textbook market. A more thorough study of the textbook industry examining market structure, barriers to entry, government educational policies relating to the periodical revamp of school curriculum, the procedures for the submission and the approval of textbooks, and the production and the selection processes of textbooks, has also been undertaken. A paper outlining the results of the study will be issued at a later date.

FINDINGS

  1. During the information gathering process, there were two market practices identified which in the Councils' view would most likely affect the extent of competition in the textbook market. These were:
  • a standard discount rate imposed by booksellers; and
  • the offer of incentives by publishers to schools.

Standard discount rate

  1. In the retail market, booksellers were alleged to have entered into a standard discount rate agreement to preclude individual bookstores from offering a discount rate beyond a prescribed level.
  2. The Educational Booksellers' Association, in a letter of 13 December 1989 to the Council, acknowledged the existence of standard discount rate agreement. The relevant part of the letter read:

"our Association did agree with effect from January 1, 1989, all secondary textbooks are retailed not more than 5% discount off the publisher's recommended retail price. Violation of this will be subject to disqualification from membership."

  1. During recent discussions with the Educational Booksellers' Association, we were told that the discount rate agreement was optional and adherence to the rate was not normal market practice.
  2. In our surveys, most publishers and booksellers dismissed the suggestion of a discount price agreement in the textbook market. Only very few mentioned that there was some form of general understanding on discounts. Nevertheless, the survey results suggested that the general understanding does have some effect, as follows.
  • About half of the respondents claimed to have been requested by the Educational Booksellers' Association to follow a standard discount rate in the sale of textbooks.
  • Of the booksellers who responded to the Council's survey, about three-quarters of those that supplied secondary school textbooks offered 5% discount and all of them were members of the Educational Booksellers' Association.
  • Only a small number of non-member booksellers gave more than 5% discount; several of them offered discount rates up to 10-15% for individual orders.
  1. In a few cases, respondents claimed that if they were found offering discounts greater than that allowed, apart from being disqualified from membership of the Association, they would also encounter difficulties obtaining supply from individual publishers.
  2. While it was observed that there were discounts on offer above the prescribed discount rate, there appeared to be a general understanding among booksellers to limit the discount rate to a maximum of 5%. In fact, at the time of our field study, the Council found some notices displayed in certain bookstores making reference to a discount of 5% agreed upon by the membership of the Association.

Offer of incentives

  1. Since the choice of textbooks is not exercised by students or by their parents, publishers direct their marketing efforts to schools, with a view to securing a demand for their textbooks. There is no difficulty to be had with publishers pointing out the intrinsic benefits of their textbooks to schools. But allegations that publishers attempt to influence the textbook selection process by offering incentives such as providing complimentary teaching aids and other gifts to schools, suggest that:
  • the efficient operation of the market may be impaired; and
  • students and their parents may be paying higher prices for textbooks than would otherwise be the case.
  1. The survey results showed that the majority (82%) of publishers and nearly all school respondents stated that it was common practice for publishers to provide complimentary teaching aids and sponsorships, and make donations (A breakdown of the incentives is listed in paragraph 17). Examples given were supplementary learning materials such as teacher manuals, progress charts, cassette tapes, and computer software. There were also other gifts to schools, or sponsorship of some extracurricular activities and events. Apart from these incentives, it is noted that there have been cases of schools requesting substantial additional number of copies of teachers' desk copies of textbooks and teaching manuals.
  2. The publishers claimed that the incentives were made out of courtesy or in response to the schools' requests for sponsorship, as most schools did not receive sufficient subsidy from the government for teaching aids or other equipment. About 38% of the publishers who replied to the survey claimed that the incentives were offered voluntarily by them. The survey results also showed that 73% of publishers (which included some of those claiming the incentives were offered voluntarily) claimed they were responding to school requests only.
  3. In the same vein, 68% of primary school respondents and 87% of secondary school respondents complained of insufficient funding from the government. Only 22% of primary schools and 13% of secondary schools considered that they received adequate resources from the government.
  4. In this study, we have identified three separate categories of incentives. The first category should be regarded as a package linked with the use of textbooks. The second category, in our opinion, should be referred to as 'nice to have' items, in that they are not absolutely essential to students and not necessarily used in conjunction with textbooks. The last category takes up the other forms of sponsorships or donations to schools which are not directly related to the use of textbooks. Examples of the three categories are:
  • Teaching aids - e.g. teacher manuals, cassette tapes, video tapes, laser discs, and computer software that assist in the use of particular textbooks.
  • Equipment - e.g. cassette players, compact disc players, computers, CD-ROMs, overhead projectors, slide projectors, television sets, and wall charts that have general educational use.
  • Sponsorships / Donations - e.g. scholarships, school magazine advertisements, prizes and funding for school functions, banquets, installation of air conditionings, copiers, and public address systems, refurbishment of schools, subsidies, and gifts to schools.
  1. The survey results showed that nearly all school respondents (100% of primary school and 98% secondary school respondents) claimed that they have been offered and received complimentary teaching manuals and desk copies of textbooks. With regard to other teaching aids, 95% of primary schools and 90% of secondary schools submitted that they received them. Only 38% of primary schools and 14% of secondary schools claimed that they accepted publishers' offers of teaching/school equipment that has general educational use. Only 5% primary schools and 12% secondary schools replied that they have received sponsorships or donations from publishers.
  2. As to the motivation behind offer of incentives from publishers to schools, in terms of their appropriateness or otherwise, that is a matter beyond the scope of this paper.

Teaching aids

  1. Certain teaching aids, such as teacher manuals, come as a package with textbooks. The value of certain teaching aids cannot be arbitrarily dismissed. Some of the teaching aids might not be critical to the use of a textbook and could be substantiated by teaching materials developed by teachers or schools. Ultimately it is a matter for the school to decide whether the offer supports the primary responsibility of schools, which is to educate students to the best possible standard.
  2. It has to be recognised that the costs of teaching aids would in some way eventually be passed on to the final prices paid by students and their parents for textbooks.
  3. In view of this cost concern, the Council sought the view of schools as to separating the provision of textbooks from teaching aids. The idea is to separate the cost of these items from the cost of textbooks so as to reduce any unnecessary pass on effects to students. Only 22% of primary school respondents and 42% of secondary school respondents concurred with the idea. The primary concern of the majority was the financial constraint of bearing that additional cost and the fact that schools will need to look for extra resources to purchase the items if they are supplied separately. Most schools felt it was the responsibility of publishers to provide the items and that if schools had to bear the costs themselves, the inability to afford them might adversely affect the quality of instruction. Moreover, it was either impossible for most teachers to produce their own teaching aids, taking into account their work pressure; or difficult for schools to prepare teaching aids by themselves in view of financial constraints.
  4. From the perspective of publishers, they might no longer have an incentive to produce teaching aids in particular, as stand-alone items, if they were to be separated from the textbooks. The reason is that the higher cost of supply through increased marketing activities and low volume, would mean that the prices schools had to pay for them would be higher than if the cost was subsumed into the cost of the textbook. Accordingly, schools may feel that the extra expense may not be worthwhile and demand for the teaching aids would be limited.
  5. The Council is of the view that to resolve this issue it may be worthwhile for the Education Department studying the costs of, and the utility of teaching aids. This would provide a basis for school management and the Government to gauge:
  • how much the provision of teaching aids adds to the cost of textbooks;
  • the extra resources required if the provision of teaching aids was separated from the supply of textbooks and schools or teachers had to produce them, rather than rely on publishers; and
  • the extent to which the provision of teaching aids facilitates the teaching of students.

Equipment and sponsorships

  1. As noted previously, in addition to teaching aids, there are other items such as equipment, gifts or sponsorships that are provided by publishers as gesture of goodwill (ultimately for marketing purposes) and that also have an effect on the textbook prices.
  2. The issue of publisher sponsorships or other incentives raises a concern as to the effect the practices have on new entrants, or on existing publishers that have to make counter offers when competing for supply of textbooks to schools. The practice of offering sponsorships or incentives could be viewed as a legitimate cost of marketing school textbooks, because of the benefit ultimately derived by schools in educating their students.
  3. However, problems can arise where the extent and the nature of sponsorships or incentives are not immediately transparent. Where there is no transparency in terms of what form the provision of sponsorships or incentives takes, the practice would impair contestability due to the hidden nature of this cost of entry. Potential suppliers would be unaware of the range of items, in addition to textbooks, for which they were actually competing to supply.

Summary

  1. In summary, it must be conceded that there is a cost increase effect that teaching aids has on the final prices paid by students and their parents for textbooks. A profit-maximizing firm would seek to at least recover the costs in marketing its products. In fact it is incumbent on them, due to responsibilities owed to their principals or shareholders, that they do so. The costs of teaching aids would eventually be reflected in the final prices paid by students and their parents for textbooks generally.
  2. As to the provision of teaching equipment, sponsorships or donations, the Council believes that this practice should also be as transparent as possible and the provision should be within an acceptable limit, so that competing publishers are aware of the possible costs of doing business. This transparency is also necessary in order that other interested parties within society in general are aware of the extent of payments to schools that could raise issues of conflict of interest.
  3. The Council is aware that the Education Department and the Independent Commission Against Corruption (ICAC), together with the Hong Kong Professional Teachers' Union, have recently held a discussion on the offer of teaching aids or gifts in schools. Their aim is to construct clear definitions of teaching aids and gifts which schools can accept. At the time of completing this paper, we have not been able to obtain details of their study.


RECOMMENDATIONS

  1. Having regard to the results of the above study, the following measures are proposed for consideration.
  1. As it appears there is an implicit standard discount rate in existence which has some effect on pricing in the textbook retail market, attention of the Educational Booksellers' Association (and any other associations involved in the industry) should be drawn to the Government's May 1998 Statement on Competition Policy. That statement called on all businesses to cease existing, and refrain from introducing, restrictive practices that impair economic efficiency or free trade. Practices such as "setting retail price minimums for products or services where there are no ready substitutes" and "price-fixing intended to distort the normal operation of the market" were identified as conduct that should be examined, in this regard. The Educational Booksellers' Association should also be requested to ensure that there is no agreed discount rate amongst its member bookstores.
  2. Our study findings did not provide firm evidence of refusal of supply of textbooks by publishers to booksellers who did not comply with a minimum discount rate. Nevertheless, it is recommended that this matter be referred to the COMPAG for its perusal.
  3. The Education Department, the ICAC and schools should devise guidelines that differentiate between essential teaching aids and equipment, as well as sponsorship and donations, and set out an acceptable limit that schools can accept.
  4. The Education Department should undertake a study into the costs of, and the utility of various teaching aids. This is to gauge how much the provision of teaching aids adds to the cost of textbooks and what extra resources would be required if the provision of teaching aids was separated from the supply of textbooks.
  5. Teaching aids that do not come as a package, and other items of teaching equipment should be treated as separate items from textbooks. If they are unpaid, the schools should record these items as donations in a public inventory of donations. Alternatively, publishers could issue invoices for them as individual items.
  6. The Education Department should be requested to add the following provisions to their guidelines:
    1. Schools should record, in a public inventory of donations, made available for inspection on request to the public, any incentives received from suppliers in the form of goods or services such as teaching aids, equipment, sponsorship or other donations.
    2. Acceptance of complimentary textbooks should be confined to teachers' desk copies as this would add costs to textbooks. Schools are encouraged to record additional complimentary copies in the public inventory of donations.

Consumer Council
30 March 1999