Electronic site licenses: Big Deals and Raw Deals Ted Bergstrom UCSB

Conferring with an industry leader Industry Leaders Conferring with an industry leader

Pricing of Paper Editions The 6 most-cited journals in economics are owned by non-profit groups. Average price to libraries is $180 per year. Only 5 of the 20 most-cited journals are owned by commercial publishers. Average price to libraries is $1660 per year.

Costs of Economics Journals Publisher Type Number of Journals Price per Page Price per Cite Non-Profit 91 $0.18 $0.15 For-Profit 206 $0.82 $2.40

Costs of a Complete Economics Collection Publisher Type Percent of Cost Percent of Cites Non-Profit 9% 62% For-Profit 91% 38%

Journal Prices by Discipline (In US $) Cost per page Cost per cite For-profit Non-profit For-profit Non-profit Ecology 1.01 0.19 0.73 0.05 Economics 0.83 0.17 2.33 0.15 Atmosph. Sci 0.95 0.88 0.07 Mathematics 0.70 0.27 1.32 0.28 Neuroscience 0.89 0.10 0.23 0.04 Physics 0.63 0.38

Monopoly Profits in Academic Publishing? Hint: University press and professional society journals are usually not subsidized They charge 1/5 as much per page as for-profit journals.

If there is free entry, how can there be monopoly? Unlike market for shoes or groceries, competitors are prevented by copyright from offering perfect substitutes. Coordination and reputation makes it hard for new entrant to attract top quality articles.

Elsevier Financial Statement Elsevier reports revenue 2 billion Euros in 2002. Claims to have 3d biggest internet revenues, behind AOL and Amazon. Reported profits equal 33.6% of revenue.

Why “only” 33 % profit margin? If they charge 5 times as much as non-profits, why aren’t Elsevier’s profits even greater? Smaller subscription bases, due to high price Rent dissipation Elsevier CEO got ~$2 million pay and $8 million in shares this year. New stock options of ~$32 million for top execs. Armies of lobbyists

The Cost of Going Online In 1998 almost no journals were online. In 2002, almost all were. Top non-profits $0.10/page in 1998 and $0.12 in 2002 --paper plus online. Top for-profits $0.79/page in 1998 and $0.89 in 2002 --paper plus online. Conclusion: Going online cost about $.02 per page. Prices of for-profits are not determined by costs.

Pricing of Electronic Journals Electronic distribution allows new pricing methods not available with paper. University-wide site licenses Price discrimination by size of university Bundling of Journals with all-or-nothing pricing Consortium pricing

A Publisher’s View “So, we should have models where we make a deal with the university, the consortia or the whole country, where for this amount we will allow all your people to use our material, unlimited… And, basically the price then depends on a rough estimate of how useful is that product for you; and we can adjust it over time. It is a principle, which, in my view, is not immoral.” From a speech by Derk Haank, CEO, Elsevier Science

A Librarian’s View “In the Big Deal, libraries agree to buy electronic access to all of a commercial publisher's journals for a price based on current payments to that publisher, plus some increment. Academic library directors should not sign on to the Big Deal or any comprehensive licensing agreements with commercial publishers… You read that right. Don't buy the Big Deal…the Big Deal serves only the Big Publishers. “ Ken Frazier, head librarian, University of Wisconsin.

An Economist’s View “Morality” of price discrimination and bundling is not the issue. Benefits and costs to the academic community is what concerns us. Profitability is what concerns commercial publishers.

Benefits of Price Discrimination and Bundling Price discrimination allows access for small colleges, poor countries. Bundling allows big universities to get everything a publisher produces. Cost of access for extra subscriber is nearly zero, so this improves efficiency.

Benefits for Whom? Profit maximizing seller can charge close to total willingness to pay of university users, leaving no net benefit to subscribers. This is worse for users than outcome if libraries refused to buy overpriced site licenses and forced seller to deal with one user at a time.

Price discrimination by non-profits With non-profits, a different story. Price discrimination & bundling improve efficiency and access. Library site licenses provide revenue to cover costs and if properly priced, allow access to nearly everyone. Probably should be priced at marginal cost (free?) to small libraries.

Bundling and Entry Deterrence Elsevier’s bundling policy deters potential entrants. Elsevier prices rise about 7% per year. Library budgets grow less rapidly. This leaves no room in budget for new cheaper journals unless library drops entire Elsevier collection.

What should libraries do? Pay attention to prices per use. Decentralize some decision-making to department levels. Replace “allocation by whining” with real monetary tradeoffs. Money saved by dropped subscrips could subsidize pay-per-view or new journals.

Collective Action? Acting jointly, libraries should simply refuse to buy site licenses for much above average cost. Overpriced journals would have to either cut prices or lose readers, authors, and editors.

Individual Bargaining With price discriminating publishers, bargaining becomes possible. There are mutual gains, don’t let the publisher get them all. To bargain well, you must be “prepared to walk.”

Bargaining tips, Elsevier Elsewhere? Determine what you’ll do if bargaining breaks down. If no deal, outcome isn’t “No access”. Individuals can subscribe. Pay-as-you-go access to journals is possible. Money saved on subscriptions can go to departmental “Elsevier Elsewhere funds.” Set a reservation price that you like much better than the no deal option.

Bargaining Remember publisher would much prefer a Big Deal to dealing with customers one at a time. Stick to your guns. Refuse to pay more than your reservation price. Enlist faculty support. Consider hiring a bargaining expert.

What should scholars do? Refuse to referee for overpriced journals. Encourage cheap journals. Referee for them. Cite them. Publish in them. Encourage professional societies to expand their journals and start new ones. Keep copyright on your own work and keep all of your papers on the web.

References Free Labor for Costly Journals, by Ted Bergstrom— J Economic Perspectives, Fall 2001 Comments on above article JEP Fall 2002. At http://www.econ.ucsb.edu/~tedb/Journals/sitelicense.html Do university site licenses benefit the academic Community? by Carl Bergstrom and me The Librarian’s Dilemma, by Kenneth Frazier, from D-Lib Magazine Is Electronic Publishing Being Used in the Best Interest of Science: The Publisher's view Speech by Derk Haank.