Thread: We are a Startup (Stir Books)... Ask Us Anything!

As a student, I really like the intent of the startup, since textbooks are expensive and annoying to effectively get rid of. But, there's some problems. Grab TexTheWorld (userscript) (Chrome) to read this. If you're on mobile then I guess ur rekt.

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R1:

The business model of the startup is this:

• You go on their website where you type up the textbooks you have to trade and the ones you want

• The website matches you with other students so you can exchange textbooks

• In exchange for reducing the frictional costs, mainly time, of barter (textbook-for-textbook trade in this case), the website charges $5 per trade

Their claim: "This approach completely changes the way you and your fellow students get your textbooks and more importantly saves you from paying ridiculous amounts of money for your books."

My claim is that this won't "save" you from paying that much extra for textbooks.

And what if the book you need and the book you have are of different value? How do you trade an expensive book to someone and get the cheaper book you need without losing money? [link]

The question we have been waiting for! Thank you so much! Soooo... the problem with the industry is that the price is set by the publishers, pitched to professors, and forced to be purchased by students. When you bring your book back to sell it, you get about half or less back. So realistically the minute you purchase a new textbook, you lost money. We kept asking ourselves this question and just wondering, "Where does the value come from? Who is creating it?" The answer we came up with... is now WE control the value. Every textbook is now $5. (Though promotionally free for the summer classes) Knowledge should not be $400. Thanks to our brilliant algorithm by our third partner who isnt here right now, all you need to do is enter the textbooks you have, and the textbooks you need. Click match and you'll be pooled with every other student on STiR so that our algorithm can find a match with someone for you. You then send your book to the address, and someone else ships your new book to you. tldr; Books are stupid expensive. You can't get what you paid for back. We decided that ends now, and every textbook is $5. [link]

First, a small nitpick: the "every textbook is now $5" is obviously incorrect, because you're trading your textbook and paying $5 for a new one. Thus, the cost of whatever textbook you buy is equal to (the market's used-textbook sale price + $5). The FMV for your used textbook will of course fluctuate, but it won't be 0.

With that out of the way, the big issue is arbitrage here. For example, let's say we have the following books:

Book	Best Price*
Intermediate Microeconomics with Calculus: A Modern Approach	$54.98
Econometric Analysis	$30.65

^{*lowest price I saw when I made wrote this}

A little bit of prax; sorry in advance.

Suppose two people trade these two books through the startup's website. Let's say the shipping costs of buying/selling the two books on the internet and trading them are about equal; let this be the variable s. And, let the bid-ask spread for buying/selling a textbook be represented by t; for simplicity, assume the spread is the same or at least close for all textbooks. This spread is due to the cut that internet sellers have to pay their websites usually as a "referral fee," and this spread is significant; just Google the prices you get for selling/buying the same exact textbook. Additionally, let's call the value halfway between the buying/selling price the FMV for simplicity. Now say you have textbook A and you need textbook B.

The difference between using the startup's website and buying/selling on the internet to get a textbook would then be:

[; (Cost\;of\; Startup\; Transaction) - (Cost\; of\; Internet\; Transaction) ;]

[; =( Flat Fee + Shipping ) - ( ( B_ {FMV} + Shipping + Ask) - (A_ {FMV} - Shipping - Bid) ) ;]

[; =( $5 + s ) - ( (B_ {FMV} + s + t/2) - (A_ {FMV} - s - t/2) ) ;]

[; =( $5 + s ) - ( (B_ {FMV} - A_ {FMV}) + 2s + t ) ;]

So, the startup is better when:

[; $5 + s < ( (B_ {FMV} - A_ {FMV}) + 2s + t ) ;]

[; ($5 - s - t) < B_ {FMV} - A_ {FMV} ;]

Therefore, the most you should theoretically be able to save is equal to the startup book trade cost minus the shipping cost and the bid-ask spread on the textbooks. In a more realistic, less theoretical sense, the startup is better when:

[; $5 + Shipping < (Cost \;of\; buying\; B - Return\; from \;selling\; A) ;]

So, will this save you from paying ridiculous amounts of money for textbooks?

We expect the textbooks people have up for trade on this website will be used/older; therefore, we expect the textbook A from the example to be depreciated. The textbooks people need are generally newer; we expect textbook B's to relatively less depreciated. Then, the (cost of buying B and the return from selling A) should be high, so the startup's website is much better right? For one person yeah. Let's return to the model again. We have the startup being better when:

[; ($5 - s - t) < B_ {FMV} - A_ {FMV} ;]

This is true for the person who needs B and has A. What about the person on the other side of the trade? Then:

[; ($5 - s - t) < A_ {FMV} - B_ {FMV} ;]

Since the trade must be optimal for both users to want to do it, we have:

[; ($5 - s - t) < abs( A_ {FMV} - B_ {FMV} ) ;]

Again, with the assumption that shipping and the bid-ask spread on textbooks are constant, the startup will help all users exchanging similarly priced textbooks. That is, if shipping is $10 and the bid-ask spread is $10 (just vomiting numbers here), then the website will help everyone who's textbooks are less than $15 apart from one another in FMV. It's important to note their system does not match textbooks by price, but just by "I have this, you need this." Of course, since users have the option of accepting/rejecting a trade, we should only expect those <$15 apart trades to go through. If the prices are >$15, then it is more optimal to sell on the internet. Again, it doesn't have to be $15; just throwing a number out there.

Would this help reduce textbook prices for students?

There's a bunch of criteria that would have to be fulfilled:

• Professors let new students reuse old editions from semesters before. Else, the students lose their textbooks' value anyways. If there are one-time online homework codes in the textbook that are needed or something, then the textbook is almost guaranteed to be worthless when used.

• Rentals must not be cheaper; better to rent when [; (rental price) < ($5 + shipping) ;]

• No room for arbitrage. Earlier I mentioned that this would be a problem, because people who can make money off this will do so. This would occur when the [; ($5 - s - t) > abs( A_ {FMV} - B_ {FMV}) ;]. If you happen to notice you're getting a great deal, you may just click accept, but that's not a huge issue. The issue is that those deals could also be found by having a bot input a shit ton of ISBN's into the "have" section, and another mutually-exclusive shit ton of books into the "need" section. Then, it could cross ref the prices with those publically catalogued and updated minutely on slugbooks.com. You could do the opposite as well and have bots give out shitty deals. "Who would do this?" you may wonder. Maybe students with crippling debt. Maybe the "eCONomists" from the sidebar. Or really anyone looking to make easy money flipping textbooks and can program. The result of purposeful arbitrage is that you end up with arbitrageurs reducing the quantity of textbooks available for trade, which makes the following much less likely:

• Double coincidence of wants. Obviously the website allows you to match up with people who would trade with you. But, what are the chances another student needs the exact same textbook you used and you want the textbook he has? Although this goes up with the quantity of textbooks on the market, a student would need about (overestimating here) 7 textbooks in a semester. How many of those must be brand new or latest edition? How many available trades would be arbitrage free? Would a rental be less expensive? This is more of a business model problem, but the result is that the service would have very little effect reducing textbook prices. Kind of like a market with high barriers to entry where the barrier is not having books others need.

Overall, I doubt this will significantly impact the market. It needs to snowball fast without people getting ripped off in order to be effective at reducing transaction costs. Oh yeah, and that's the last point. The most this service reduces textbook prices by (assuming an equal FMV book trade) is the transaction cost of buying+selling minus the $5 fee.