Some Economics of OSA’s Journals Ted Bergstrom Professor of Economics, UCSB

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Professional Societies: A Success Story? They publish the best journals in their areas. They manage to make a profit doing so. Still they are priced far lower than the for- profit journals.

Barshall’s Physics Journals--updated to Optics-related Journals Pricing and Citations

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

Each type plays a major role 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.

OSA Survey: Which kind of journal do you think is more costly to libraries? ___Non-profit journals ___They cost about the same ___For-profit journals What do your colleagues think?

Which costs more? Physics Dept Chairs say: Non-profits8% About same38% For-profits53% Non-profits0% About same4% For-profits96% Librarians say:

What do we conclude? __Librarians are brighter than dept chairs? _ ___Societies should advertise their lower prices? __ Scientists should avoid donating labor to overpriced journals? __Overpricing appears when the buyers are not users and the users are not the buyers?

How do OSA prices compare?

Optics Express and Open Access Great idea. Societies don’t need to sell all of their products to cover costs. Other societies should learn from this. OSA price/performance statistics should be adjusted (price/page down by ~10%) to account for this free 1600 page journal.

Pages published by U.S. Societies DisciplineMembersPages publ. Microbiology42,00053,000 Physics-APS40,00096,600 Math-AMS30,00012,000 Optics-OSA13,00019,000 Econ-AEA18,8004,300 Entomology6,5004,100 Polit. Science14,0002,000

Not all is bright OSA subscription numbers are falling OSA institutional prices have been rising at 8.5% per year in recent years Access to electronic editions is remarkably sparse Many respectable universities do not have access to all of top 4 journals Very few subscriptions to JON, JOT, O&S

AOAO

OLOL

Market Penetration of Top 4 OSA Journals

The best monopoly profit is a quiet life… Sir John Hicks, 1932 Quiet Life

What’s the Problem? Technology has improved. Costs have fallen. Yet subscriptions are falling and to maintain revenue, societies raise prices, which further reduces subscriptions. Big universities used to have multiple subscriptions, now have none. Some small schools drop out.

Technical change Online access has closed off some revenue sources and opened new opportunities. Having multiple copies is much less valuable for big universities. Having access is now technically feasible for schools with limited shelf space. Marginal cost of providing access to smaller libraries is drastically reduced.

Profit-Readership tradeoff Academic societies want to maximize readers, subject to making some limited profit.Academic societies want to maximize readers, subject to making some limited profit. Authors want readers. Readers want access.Authors want readers. Readers want access. Commercial publishers want simply to maximize profits.Commercial publishers want simply to maximize profits.

Profit-Readers Frontier P r o fi t s # of readers Open Access Efficient Commercial pub Efficient Society pub Typical Society Pub Many Commercial pubs

A Better Pricing Method Different prices to buyers with differing willingness to pay. Two-part tariff principle. If you pay the entry fee, you get to “buy” everything at marginal cost. Package would include –Full electronic access to all OSA products –Purchase of as many print copies as you like at marginal cost (about $.01 per page.)

Simple Proposal--Part I For Current subscribers, charge a subscription fee equal to the total amount they paid for OSA journals in –In return, give them the paper subscriptions they had in past plus electronic access to all OSA journal, including archive. –Also allow them to purchase as many additional paper copies of journals as they like at true marginal cost (about $ per page

Simple Proposal--Part II For those not subscribed in 2002, offer electronic access to Infobase at an extremely low price, say $ a year. –Enough to cover cost of handling subscription and server capacity, plus small profit. –Publicize this offer extensively.

Simple Proposal—III The Longer Run In the long run, prices should be adjusted to more recent experience. Suggestion use a weighted average of based price and post 2002 usage data to determine prices. As time passes, weight on usage increases. Note that you can’t get usage data until you actually have electronic subscriptions.

Tier Schemes and Price Discrimination Several societies, including APS and AIP have introduced “tiered pricing”. Tiers are constructed as weighted average of variables measuring size and wealth of university. Bottom tier price is more than half of top tier price.

APS and AIP Tiered Prices TierRatio to top price APS Ratio to top price AIP

Serials budget range Type of SchoolRatio Median Serials Budget to Top 20 Median Top 201 Carnegie Top Class (155 schools) 0.5 Masters I0.04 Liberal Arts I0.02 Junior Colleges0.004

Damage Control Only? APS plans to raise prices by 8.7% in 2004, and projects continued loss of subscriptions at same rate as in past. APS and AIP are not cutting prices to low subscription groups, but are raising prices substantially for big universities who have been dropping secondary subscriptions, (though not allowing them extra copies.) No thought of recovering lost subscription base.

Why have the others been so timid? They have been afraid of losing revenue –by losing revenue from current buyers as price is cut –By losing sales to those whose price is raised Differences in demand among middle-sized schools are quite difficult to predict. Regression models leave large residuals.

How radical is our proposal? Q--If pricing based on previous expenditures is such a good idea, why haven’t others thought of it. A—Somebody has. Q---Who? A---Elsevier. Of course they use it to maximize their profits, but you can use it to maximize your distribution.

Enough for now.

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.

References Free Labor for Costly Journals, by Ted Bergstrom—J Economic Perspectives, Fall (at Comments on above article JEP Fall –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.

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 $)