July 29, 2019
Makan Delrahim
Assistant Attorney General
Antitrust Division
Department of Justice
950 Pennsylvania Ave NW
Ste. 3109
Washington, D.C. 20530
Dear Assistant Attorney General Delrahim:
We write to urge the Department of Justice to block the proposed merger between Cengage and
McGraw-Hill, the second and third largest publishers in the college textbook marketplace. The
proposed merger would create a company worth approximately $5 billion, dwarfing all but one
competitor,1 and likely would lessen competition in the textbook marketplace. It would harm
students through higher prices, diminished choice, and reduced value. And it would harm
scholars, authors, and editors by restricting the purchasing market for new educational materials.
The textbook industry, once a robust market with a multitude of competing publishers, is now
dominated by a handful of giants. Starting in the mid-1970s, a push toward standardization of
course materials, combined with a growing interest in more visual content in academic texts,
triggered a fundamental shift in the college textbook industry.2 Textbooks became more colorful,
more frequently updated, and more expensive. The Bureau of Labor Statistics’ Consumer Price
Index shows that the price of textbooks has increased a staggering 1,041% since 1977 –
annually, three times faster than inflation – due in large part to publisher efforts to eliminate the
used book market.3 Our research shows that 65% of students have skipped buying a book at
some point in their college career because of cost despite 94% of them knowing it would hurt
their grade.4
Now, about 20 years into the digital age, the problems of the college textbook industry are poised
to become much worse as the industry shifts toward a digital-centric model. This letter explains
why the proposed merger – between two leading publishers eager to eliminate the secondary
market for print textbooks and dominate the emerging digital textbook market – threatens the
interest of students and academic authors and should be blocked by the Justice Department in
court.
The merging parties have pledged to eliminate the secondary textbook market which students
rely on for affordable materials.
1

Cara Lombardo, McGraw-Hill to Merge with Rival Textbook Publisher, Wall Street Journal (May 1, 2019),
https://www.wsj.com/articles/mcgraw-hill-cengage-plan-all-stock-merger-11556683590.
2
Ernie Smith, A Brief History of the College Textbook Pricing Racket, Atlas Obscura (Aug. 29, 2016),
https://www.atlasobscura.com/articles/a-brief-history-of-the-college-textbook-pricing-racket.
3
U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: Educational books and supplies
[CUSR0000SEEA], retrieved from FRED, Federal Reserve Bank of St. Louis,
https://fred.stlouisfed.org/series/CUSR0000SEEA, July 16, 2019.
4
Ethan Senack, U.S. Public Interest Research Group, Fixing the Broken Textbook Market: How Students Respond to
High Textbook Costs and Demand Alternatives (2014),
https://uspirg.org/sites/pirg/files/reports/NATIONAL%20Fixing%20Broken%20Textbooks%20Report1.pdf.

1

 Traditionally, Cengage and McGraw-Hill (and their peer companies) have viewed the textbook
resale market as a threat to their revenues and have employed a variety of tactics to restrict it. For
instance, publishers generally push textbook writers to issue new editions approximately every
three years.5 Oftentimes, these “revised” editions could have edits as simple as swapping the
order of chapters or replacing images within the text. Publishers also approach individual faculty
to create “custom” editions for a class, containing similarly superficial revisions. Companies
even reduce the physical shelf life of used textbooks, by releasing some titles as paperback or
loose-leaf versions (which degrade more quickly than hardcover books).
While these strategies have resulted in a print textbook market characterized by unnecessary –
and frequent and expensive – new editions, within the last decade publishers have turned to the
digital space in hopes of eliminating the secondary market for college textbook materials. To that
end, both Cengage and McGraw-Hill have pledged to transform themselves from traditional print
textbook publishers to digital software and content providers, accelerating a trend currently
playing out across the higher education textbook industry. Cengage CEO Michael Hansen,
speaking to the strategy underlying his company’s digital-first focus, noted that his company
hopes to “[recapture] students who have been using our materials but have not given us any
revenue...These are students that are buying a used book from another student. No revenue for
us.”6 Cengage isn’t the only publisher intent on eliminating the secondary market. Just last week,
industry leader Pearson announced that from now on, students would only be able to rent – not
own – physical textbooks.7
A shift to the digital medium allows Cengage and McGraw-Hill to pursue strategies to rapidly
eliminate the secondary market for print textbooks.
Cengage and McGraw-Hill, among others, have used the digital medium to limit the secondary
market in a way that would not be possible in the traditional print market. In particular, the
companies have advanced the use of access codes, automatic billing, and subscription plans to
almost completely eliminate the used textbook market. These practices only deepen the problems
that have led to skyrocketing textbook prices over the past four decades.
An access code is a semester-long expiring login to a proprietary online platform containing
supplemental materials like homework, as well as e-textbooks, study aids, and even exams.
Because students are required to purchase an access code to submit homework and cannot retain
and resell the code at the end of the course, they cannot recoup any of the cost of the code and
may end up spending more in the long run for course materials.8 Fundamentally, the use of
access codes – an expiring product – eliminates the used materials market, leaving the publisher
as the sole provider of course content. As Cengage CEO Michael Hansen said, the used book

5

Kate Rube, State Public Interest Research Groups, Ripoff 101: 2nd Ed., at 1 (2005),
https://www.immagic.com/eLibrary/ARCHIVES/GENERAL/ST_PIRGS/C050201F.pdf .
6
Tony Wan, In Move to ‘Unlimited’ Pricing Model, Cengage Hopes for a Comeback, EdSurge (Apr. 24, 2018),
https://www.edsurge.com/news/2018-04-24-in-move-to-unlimited-pricing-model-cengage-hopes-for-a-comeback.
7
Education Publisher Pearson to Phase Out Print Textbooks, BBC News (July 16th, 2019),
https://www.bbc.com/news/business-48998789.
8
Ethan Senack et. al., U.S. Public Interest Research Group, Access Denied: The New Face of the Textbook
Monopoly (2016), https://uspirg.org/reports/usp/access-denied-new-face-textbook-monopoly-0.

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 market is “a market that should fall by the wayside if we do our job the right way.”9 All major
publishers have adopted access codes in their offerings.
Automatic billing – also known as “inclusive access,” – merely expands the use of access codes
and other expiring digital products by billing students via an opt-out fee on their tuition bill.
Students often do not realize that they are subject to such arrangements. According to a recent
lawsuit,10 one campus bookstore displayed certain digital materials as “free” – when in reality,
participating students had, in many instances unknowingly, already paid for them via an
automatic fee on their tuition.
This practice means that students cannot shop around and find the best price on course materials.
Based on conversations with industry observers and participants, some contracts for automatic
billing programs include an almost six percent annual price increase (ensuring the price of books
increases much faster than inflation), and student opt-out rates for automatic billing programs are
estimated at around one percent today – an abysmally low figure. Automatic billing mechanisms
lock students into buying from a single approved vendor: the school itself. All three of the major
publishers, including Cengage and McGraw-Hill, have established automatic billing programs.
The third strategy to limit the secondary market and students’ ability to shop for the best prices is
a subscription service called “Cengage Unlimited.” It is a “Netflix-style” subscription to
Cengage’s entire catalog of access codes and e-textbooks, bundled with a set of ancillary study
tools. Many members of the higher-ed community have expressed serious concerns with this
model. Using such “Netflix-style” platforms, publishers can replace straightforward sales of
hard-copy learning materials with digital “licenses” that restrict sharing and re-sale.
In light of the unique features of the digital textbook medium, the Justice Department’s
longstanding distinction between used and new materials is even more relevant to this proposed
merger.
Recognizing the tactics employed by textbook publishers to marginalize the secondary market,
the Justice Department has consistently held the view that used textbooks are not a reasonable
alternative to new textbooks. First, in United States v. Pearson P.L.C., 55 F. Supp. 2d 43 (D.D.C.
1999), the Justice Department remedied Pearson’s acquisition of Viacom’s education,
professional, and reference publishing business. In its complaint, the Department noted that
“[t]extbooks are generally revised every three to four years, and professors usually require use of
the newest edition. This limits the ability of used textbooks to compete with new texts. Supply of
used textbooks is also limited by the number of students that sell their textbooks back to college
bookstores. Used textbooks cannot defeat an increase in the price of new textbooks or a decrease
in the supply of the ancillary materials included or sold with them.”11
A few years later, in United States v. Thomson Corp., 2001 U.S. Dist. LEXIS 27383 (D.D.C.
2001), the government remedied Thomson’s acquisition of the college textbook publishing and
computer-based testing businesses of Harcourt General from Reed Elsevier Inc. The government
9

Carl Straumsheim, Cengage Surfaces, Inside Higher Ed (Apr. 2, 2014),
https://www.insidehighered.com/news/2014/04/02/cengage-learning-emerges-bankruptcy-focus-digital-growth.
10
Paul Bowers, Textbook ‘Scam’ Alleged in Federal Lawsuit Against SC’s Biggest Technical College, The Post and
Courier (Feb. 1, 2019), https://www.postandcourier.com/news/textbook-scam-alleged-in-federal-lawsuit-against-scs-biggest/article_d266c94a-262e-11e9-a6dd-ab6ac37fa3d1.html.
11
Complaint at 9, United States v. Pearson P.L.C., 55 F. Supp. 2d 43 (D.D.C. 1999).

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 took the same position as it had in Pearson on the lack of substitutability between used and new
textbooks.12 And most recently, in United States v. Cengage Learning Holdings I, L.P., 2008
U.S. Dist. LEXIS 106356 (D.D.C. 2008), the Justice Department obtained divestitures in
Cengage’s acquisition of Houghton-Mifflin College Division, making the same argument as it
had in Pearson and Thompson, and noting in particular that “revised textbooks often differ
substantially from their prior edition.”13
As publishers shift from hardcopy to digital materials, the Justice Department’s traditional
distinction between new and used materials is further accentuated. Features like automatic billing
and inclusive access, as discussed previously, mean that the difference between digital textbook
products and traditional hardcopy materials is far greater than that between successive editions of
a print textbook. Digital “textbooks” are not just textbooks; they are also assessment, analytics,
and adaptive learning platforms that could not exist outside the digital medium. These features
render them qualitatively different from traditional print textbooks and compel a market
definition that excludes secondhand materials.
Within the market for new materials, Cengage and McGraw-Hill are two of the leading
companies in an already extremely concentrated space.
Only five companies currently control 80 percent of the U.S. college textbook market:14 Pearson,
Cengage, McGraw-Hill, Macmillan, and Wiley. The remaining 20 percent of the market is
divided among smaller independent and university presses that produce lower-run volumes for
more specialized classes.
The proposed merger is unlawful under long-standing antitrust law. Section 7 of the Clayton
Antitrust Act forbids any merger or acquisition “where in any line of commerce or in any activity
affecting commerce in any section of the country, the effect of such acquisition may be
substantially to lessen competition, or to tend to create a monopoly.”15 Supreme Court and lower
court precedents have made clear that the government has to show only a reasonable probability,
not certainty, that competitive harm will result from a combination.16 The Department of Justice
and Federal Trade Commission’s joint 2010 Horizontal Merger Guidelines state, “The Agencies
normally assess competition in each relevant market affected by a merger independently and
normally will challenge the merger if it is likely to be anticompetitive in any relevant market.”17
The evidence clearly shows that the merged entity’s market share in the relevant market – new
higher education textbooks and digital learning products – should be presumed to produce
competitive harm and is accordingly illegal. Cengage CEO Hansen has stated that his company’s
US higher education market share, reported in 2018 as $790 million, is “slightly north of 20
percent.”18 McGraw-Hill’s self-reported market share for the fiscal year ending in 2018 is 21

12

Complaint, United States v. Thomson Corp., 2001 U.S. Dist. LEXIS 27383 (D.D.C. 2001).
Complaint at 5, United States v. Cengage Learning Holdings I, L.P., 2008 U.S. Dist. LEXIS 106356.
14
Senack, U.S. Public Interest Research Group, Fixing the Broken Textbook Market.
15
Clayton Antitrust Act of 1914 § 7, 15 U.S.C. § 18 (1914).
16
Brown Shoe Co. v. United States, 370 U.S. 294, 317 (1962); United States v. Penn-Olin Chemical. Co., 378 U.S.
158, 171 (1964); United States v. Von’s Grocery Co., 384 U.S. 270, 285 (1966); United States v. Dairy Farmers of
America, Inc., 426 F.3d 850, 858 (6th Cir. 2005); FTC v. H.J. Heinz Co., 246 F.3d 708, 713 (D.C. Circ. 2011).
17
U.S. Department of Justice, Horizontal Merger Guidelines, 30 n.14 (Aug. 19, 2010).
18
Wan, In Move to ‘Unlimited’ Pricing Model, Cengage Hopes for a Comeback, EdSurge.
13

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 percent.19 In United States. v. Philadelphia National Bank, 374 U.S. 321 (1963), the Supreme
Court ruled that a merger which results in an entity controlling at least 30 percent of a defined
market is presumed to be violative of the Clayton Act.20 The combined entity would control at
least 40 percent of the U.S. higher education textbook market and exceeds that threshold.
The Herfindahl-Hirschman Index (HHI), a commonly used measure of market concentration and
a key analytical tool in the Horizontal Merger Guidelines,21 points to the same conclusion. An
estimate of the HHI for this market – under assumptions most favorable to Cengage and
McGraw-Hill – makes clear that the proposed merger demands closer scrutiny, if not outright
prohibition. We take as inputs the following conservative market share figures for the three
leading competitors in the higher education textbook industry:
Pearson:
Cengage:
McGraw-Hill:

41%22
20%
21%

Based on these figures and ignoring other competitors in the industry (Macmillan Inc. and
smaller specialty publishers), the lowest possible pre-merger HHI is approximately 2520. The
2010 Horizontal Merger Guidelines state explicitly that an industry with an HHI above 2500 is
“highly concentrated.”23 Note that this HHI does not include the market shares of Wiley,
MacMillan, or any other publisher accounting for the rest of the roughly 20 percent of the
market. The HHI for the textbook publishing market is almost certainly higher than 2520.
The post-merger HHI would be significantly higher and trigger the presumption of illegality
established in the Horizontal Merger Guidelines. The combined Cengage-McGraw entity would
control 41 percent of the market. With all other assumptions unchanged, the lowest possible
post-merger HHI would be approximately 3360—840 points higher than before the merger. The
Horizontal Merger Guidelines state that “[mergers] resulting in highly concentrated markets that
involve an increase in the HHI of more than 200 points will be presumed to be likely to enhance
market power. The presumption may be rebutted by persuasive evidence showing that the merger
is unlikely to enhance market power.”23 (Emphasis added).
Even with the most favorable assumptions, the evidence clearly shows that this industry is highly
concentrated, and the proposed merger threatens to increase that concentration significantly. By
the government’s own guidelines, the burden shifts to Cengage and McGraw-Hill to furnish
“persuasive evidence” that their merger is unlikely to enhance market power.

19

McGraw-Hill Educ., Inc., Annual Report (2018),
https://s22.q4cdn.com/942918855/files/doc_financials/annual/2018/MHE-2018.12.31-Annual-Report_FINAL.pdf.
20
See also: Polypore Int’l Inc. v. FTC, 686 F.3d 1208 (11th Cir. 2012), which shows that enforcers and courts
continue to recognize the Philadelphia National Bank structural presumption for horizontal mergers; Peter C.
Carstensen, The Philadelphia National Bank Presumption: Merger Analysis in an Unpredictable World, 80 Antitrust
L.J. 80, 251 (2015).
21
The HHI ranges from 0 in markets with no concentration to 10,000 in markets with pure monopoly.
22
Pearson 2018 Preliminary Results p., Pearson P.L.C. (Feb. 22, 2019), https://www.pearson.com/content/dam/onedot-com/one-dot-com/global/Files/news/news-annoucements/2019/2018-Prelim-Results-Press-Release-financials20190222.pdf.
23
U.S. Department of Justice, Horizontal Merger Guidelines, at 19 (Aug. 19, 2010).

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 This proposed merger would harm more than just colleges and universities.
While the proposed merger would expand the catalog of titles covered under Cengage’s
Unlimited model by including all of McGraw-Hill’s content, it would also harm the academics
and researchers who write textbooks and the editorial professionals who support them. A
combined Cengage and McGraw-Hill would deprive the market of one major publisher of
textbooks and purchaser of authors’ and editors’ services.
The merged company would likely exert greater downward pressure on the number of new titles
published each year, accelerating what is already a serious problem in the industry. This is in
large part because industry observers note that Cengage management, as part of its shift to
digital, is “more selective now than in the past” about signing new textbook authors.24 And at
McGraw-Hill, there has been a “general decline” in the number of new products, compared to
ten years ago.24 At the same time, academics who author educational materials are now asked to
take on additional roles such as developing supplemental graphics and assessing peers’ content.24
Authors now have fewer opportunities to publish new titles, and when they are able to sign a
contract to write and publish a new textbook, they have to do significantly more than just provide
the text itself. The bargaining power of a combined Cengage-McGraw-Hill would likely make
these problems even worse.
This merger would also exacerbate the risk of theft or abuse of student data.
Publishers like Cengage and McGraw-Hill argue that their digital learning products (also known
as “courseware”) will allow universities to better serve student needs by aggregating student data
on performance. This ultimately means that students are inadvertently paying for course
materials with their personal performance data.25 Because students may have no choice but to
purchase the digital subscription, they are functionally coerced into accepting the publishers’
data usage policies. Even if publishers claim to employ restrictive data usage policies that ensure
student privacy, it is relatively common in digital product contracts for terms of use to change
retroactively without the informed consent of customers. As publishers seek to increase
revenues, they will be tempted to monetize the vast amount of student data they collect.
Additionally, this collection of sensitive data on individual students may be highly vulnerable to
breach or cyber-attack. To the extent publishers are permitted to collect student data, the data
should not be concentrated in just a few publishers’ hands.
The Department of Justice should block this merger.
The proposed merger between Cengage and McGraw-Hill would combine the second and thirdlargest competitors in the higher education textbook market into a single entity. This company
would control approximately 40 percent of the market – large enough to trigger a presumption of
illegality under Section 7 of the Clayton Act. Moreover, the merger threatens to exacerbate the
problem of runaway textbook prices by (a) eliminating the used book market and (b) making it
more difficult for educational institutions to compare, select, and change materials as they see fit.
Students, many of whom lack financial means and are effectively captive customers, would
24

Lindsay McKenzie, Shifting Focus of Publishers Signals Tough Times for Textbook Authors, Inside Higher Ed
(Dec. 12, 2018), https://www.insidehighered.com/news/2018/12/12/switch-digital-first-products-publishers-aresigning-fewer-textbook-authors.
25
Landscape Analysis, Scholarly Publishing and Academic Research Coalition (Mar. 28, 2019),
https://sparcopen.org/our-work/landscape-analysis/.

6

 inevitably suffer – both from the increased cost of course materials and from the coerced
extraction of personal data. We strongly urge the Department of Justice to block this merger.
Sincerely,
Open Markets Institute
U.S. Public Interest Research Group Education Fund
Economic Policy Institute
Institute for Local Self-Reliance
Open MIC (Open Media and Information Companies Initiative)
Public Citizen
Public Knowledge
Robert H. Lande, Venable Professor of Law, University of Baltimore
School of Law
Marshall Steinbaum, Assistant Professor of Economics, University of Utah
Spencer Weber Waller, John Paul Stevens Chair in Competition Law,
Loyola University Chicago School of Law

7