The Peculiar Market for Academic Journals Ted Bergstrom UCSB

Industry Leaders Conferring with an industry leader

A curious market structure Private profit-maximizing firms and non- profit societies and academic presses both are significant players.Private profit-maximizing firms and non- profit societies and academic presses both are significant players. Most of the workforce--authors and referees--work for free.Most of the workforce--authors and referees--work for free.

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

Costs of Economics Journals Publisher Type Number of Journals Price per Page Price per Cite Non-Profit91$0.18$0.15 For-Profit206$0.82$2.40

Journal Prices by Discipline Ecology Economics Atmosph. Sci Mathematics Neuroscience Physics Costper page Cost per page For-profit Nonprofit Non-profitFor-profitNon-profit Cost per cite (In US $)

Costs of a Complete Economics Collection PublisherType Percent of Cost Percent of Cites Non-Profit9%62% For-Profit91%38%

Costs of a Physics Collection: Heinz Barshall’s Sample PublisherType Percent of Cost Percent of Cites Non-Profit39%79% For-Profit61%21%

Division of Labor The greatest improvements in the productive powers of labour… seem to have been the effects of the division of labour…. Adam Smith, Wealth of NationsThe greatest improvements in the productive powers of labour… seem to have been the effects of the division of labour…. Adam Smith, Wealth of Nations Illustrated by scholarly publishing:Illustrated by scholarly publishing: Non-profits supply most of the citations.Non-profits supply most of the citations. For-profits collect most of the money.For-profits collect most of the money.

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

Elsevier Financial Statement Elsevier reports revenue 2 billion Euros in 2002.Elsevier reports revenue 2 billion Euros in Claims to have 3d biggest internet revenues, behind AOL and Amazon.Claims to have 3d biggest internet revenues, behind AOL and Amazon. Reported profits equal 33.6% of revenue.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?If they charge 5 times as much as non-profits, why aren’t Elsevier’s profits even greater? Smaller subscription bases, due to high priceSmaller subscription bases, due to high price Rent dissipationRent 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

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.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.Coordination and reputation makes it hard for new entrant to attract top quality articles.

Fable of the Anarchists’ Annual meeting Once upon a time a bunch of anarchists happened to get together on January 3 in a hotel in Kansas CityOnce upon a time a bunch of anarchists happened to get together on January 3 in a hotel in Kansas City They had a grand time.They had a grand time. Next year more anarchists came and they had even more fun.Next year more anarchists came and they had even more fun. The tradition grew and meetings got bigger and more enjoyable.The tradition grew and meetings got bigger and more enjoyable.

Trouble in Kansas City One year, the hotel owner raised his rates at conference time.One year, the hotel owner raised his rates at conference time. Attendance fell a little and owner’s revenue rose a lot.Attendance fell a little and owner’s revenue rose a lot. Next year owner did it again.Next year owner did it again. Anarchists groused, had less fun with the smaller crowd and higher prices.Anarchists groused, had less fun with the smaller crowd and higher prices. Why didn’t they move to another hotel?Why didn’t they move to another hotel? They are anarchists!They are anarchists!

The strange economics of academic journals If one brand of car cost 6-15 times as much as others of better quality, how many would be sold?If one brand of car cost 6-15 times as much as others of better quality, how many would be sold? Almost zero, because people would substitute low priced for high priced.Almost zero, because people would substitute low priced for high priced. Why then do commercial journals that cost times as much per cite as nonprofits continue to sell?Why then do commercial journals that cost times as much per cite as nonprofits continue to sell?

Journals as Complements Academic journals tend to be complements, not substitutes.Academic journals tend to be complements, not substitutes. Two copies of cheap society journal will not replace a subscription to Elsevier journal that costs 10 times as much per cite.Two copies of cheap society journal will not replace a subscription to Elsevier journal that costs 10 times as much per cite. Many scientists want to read all significant research in their area, not just the top papers.Many scientists want to read all significant research in their area, not just the top papers.

More strange economics With most goods, middleman pays producer, consumer pays middleman.With most goods, middleman pays producer, consumer pays middleman. With journals, producer pays middleman (often not much), consumer pays middlemanWith journals, producer pays middleman (often not much), consumer pays middleman

Open Access Model Producer pays middleman, consumer pays nobody.Producer pays middleman, consumer pays nobody. Would this work for nonprofits?Would this work for nonprofits? Would this work for profit-maximizers?Would this work for profit-maximizers?

Non-profit open access? To succeed an open access journal must attract authors.To succeed an open access journal must attract authors. Are authors and their universities willing to pay to have their work read and cited?Are authors and their universities willing to pay to have their work read and cited? – Evidence that open access articles are more cited. –Economic study: avg citation worth $40 per year. But will they pay $1500 as for PLOS.But will they pay $1500 as for PLOS. Remains to be seen.Remains to be seen.

Partial open access models Authors of accepted articles can pay a surcharge for their paper to be open access.Authors of accepted articles can pay a surcharge for their paper to be open access. Journal still sells subscriptions to entire journal.Journal still sells subscriptions to entire journal. OUP’s Nucleic Acids Research—90% of authors chose to pay $530. OUP’s Nucleic Acids Research—90% of authors chose to pay $530. PNAS survey 40% would pay $500 to make their PNAS articles open access.PNAS survey 40% would pay $500 to make their PNAS articles open access.

Open access and competition With for-profits, competition on the author side is likely to be much stiffer than on reader side.With for-profits, competition on the author side is likely to be much stiffer than on reader side. Would any author submit papers to a journal that had submission fees 6-15 times as high as equivalent competitor? Would any author submit papers to a journal that had submission fees 6-15 times as high as equivalent competitor? Not likely. Why?Not likely. Why? From authors view, journals are substitutes not complements.From authors view, journals are substitutes not complements.

Libraries as toll collectors? In PNAS, CB and I argue that library purchase of site licenses from profit-maximizers reduces well-being of academic community.In PNAS, CB and I argue that library purchase of site licenses from profit-maximizers reduces well-being of academic community. Better outcome if Elseviers are forced to deal with individuals.Better outcome if Elseviers are forced to deal with individuals. For nonprofit journals, the conclusion is opposite.For nonprofit journals, the conclusion is opposite. For these site licenses enhance efficiency by improving access without increasing cost.For these site licenses enhance efficiency by improving access without increasing cost.

What should libraries do? Decentralize some decision-making to academic departments.Decentralize some decision-making to academic departments. Replace “allocation by whining” with real money tradeoffs.Replace “allocation by whining” with real money tradeoffs. Subsidize new journals, submission fees for open access, or even pay-per-views. Subsidize new journals, submission fees for open access, or even pay-per-views. Where does money come from?Where does money come from?

How to deal with the Big Deal: A modest proposal Stop being gatekeeper and revenue collector for overpriced journals.Stop being gatekeeper and revenue collector for overpriced journals. Set a maximum price/citation a little higher than that of non-profits in the same field and refuse to buy electronic subscriptions at any higher price.Set a maximum price/citation a little higher than that of non-profits in the same field and refuse to buy electronic subscriptions at any higher price. Let journals that charge more sell to individual subscribers, subscriptions or pay-per-view.Let journals that charge more sell to individual subscribers, subscriptions or pay-per-view.

Had enough? OK, then, I’ll quitOK, then, I’ll quit

Want more? Check outCheck outwww.econ.ucsb.edu/~tedb …papers, statistics, weasel’s manual, etc …papers, statistics, weasel’s manual, etc

The Cost of Going Online In 1998 almost no journals were online. In 2002, almost all were.In 1998 almost no journals were online. In 2002, almost all were. Top non-profits $0.10/page in 1998 and $0.12 in paper plus online.Top non-profits $0.10/page in 1998 and $0.12 in paper plus online. Top for-profits $0.79/page in 1998 and $0.89 in paper plus online.Top for-profits $0.79/page in 1998 and $0.89 in paper plus online. Conclusion: Going online cost about $.02 per page. Prices of for-profits are not determined by costs.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.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. “ 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.“Morality” of price discrimination and bundling is not the issue. Benefits and costs to the academic community is what concerns us.Benefits and costs to the academic community is what concerns us. Profitability is what concernsProfitability is what concerns commercial publishers. commercial publishers.

Benefits of Price Discrimination and Bundling Price discrimination allows access for small colleges, poor countries.Price discrimination allows access for small colleges, poor countries. Bundling allows big universities to get everything a publisher produces.Bundling allows big universities to get everything a publisher produces. Cost of access for extra subscriber is nearly zero, so this improves efficiency.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.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.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.With non-profits, a different story. Price discrimination & bundling improve efficiency and access.Price discrimination & bundling improve efficiency and access. Library site licenses provide revenue to cover costs and if properly priced, allow access to nearly everyone.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.Probably should be priced at marginal cost (free?) to small libraries.

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

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

What should scholars do? Refuse to referee for overpriced journals.Refuse to referee for overpriced journals. Encourage cheap journals.Encourage cheap journals. –Referee for them. –Cite them. –Publish in them. Encourage professional societies to expand their journals and start new ones.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.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 2001Free Labor for Costly Journals, by Ted Bergstrom— J Economic Perspectives, Fall 2001 Comments on above article JEP Fall 2002.Comments on above article JEP Fall At urnals/sitelicense.htmlAt urnals/sitelicense.html urnals/sitelicense.html urnals/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.