The Profit Motive and Academic Journals Ted Bergstrom UCSB

The curious market structure of academic publishing 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.

Research Team A Research Team in Action

Market Performance 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 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.

A bit of history In 1960 there were ~30 econ journals, all non- profit, all cheap.In 1960 there were ~30 econ journals, all non- profit, all cheap. In 1980,~120 econ journals, half for-profit, half non-profit.In 1980,~120 econ journals, half for-profit, half non-profit. In 2000,~300 econ journals, 2/3 for-profit.In 2000,~300 econ journals, 2/3 for-profit. Between 1985 and 2000, top ten for-profits almost doubled their pages, top ten non- profits increased ~20%.Between 1985 and 2000, top ten for-profits almost doubled their pages, top ten non- profits increased ~20%.

Entrepreneurship In the 1970’s the economics profession was growing rapidly and society journals were not growing as fast.In the 1970’s the economics profession was growing rapidly and society journals were not growing as fast. Specialized field journals were not common.Specialized field journals were not common. North-Holland (and other companies now merged into Elsevier) started about 30 new journals.North-Holland (and other companies now merged into Elsevier) started about 30 new journals. About 12 of these could now be called leading field journals.About 12 of these could now be called leading field journals.

Rewards to innovation In 1985, the new commercial journals cost about 3 times as much per page as their non- profit counterparts.In 1985, the new commercial journals cost about 3 times as much per page as their non- profit counterparts. Now about 6 times as much and increasing by 6.5% per year.Now about 6 times as much and increasing by 6.5% per year. Elsevier reports 33% profits on sales in science and health division.Elsevier reports 33% profits on sales in science and health division.

Why didn’t economics societies start more journals and add more pages? Confidence that private sector would do as well as non-profit.Confidence that private sector would do as well as non-profit. Elitist views of old-guard leadership.Elitist views of old-guard leadership.

Pages published by U.S. Societies Discipline Society members Pages published 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

Favorable signs Journal of European Econ AssocJournal of European Econ Assoc Economic BulletinEconomic Bulletin Journal of Public Economic TheoryJournal of Public Economic Theory ELSSS Review of Economic TheoryELSSS Review of Economic Theory BE PressBE Press Review Economic Studies plans to increase pages by 50%.Review Economic Studies plans to increase pages by 50%. AER increased by ~25% in 2002AER increased by ~25% in 2002

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

Profit-Readers Frontier P r o fi t s # of readers c A B Commercial Pub D Society pub

Short of the Frontier? Price discriminate by institution size?Price discriminate by institution size? Free access to public libraries?Free access to public libraries? Make some material open access?Make some material open access? Bundle journal with other nonprofits?Bundle journal with other nonprofits?

Social cost of overpriced journals? Large wealth transfer from universities to executives and stockholders.Large wealth transfer from universities to executives and stockholders. – UC $20 million journals budget. Half goes to Elsevier, who provide ¼ of the usage. –Elsevier Science & Medical $2 billion in sales (overpriced by factor of 5?). Excess burden from reduced access.Excess burden from reduced access. –Typical journal costs 5 times as much, has half as many subscriptions. Rent dissipationRent dissipation –Huge lobbying staffs, executive bonuses

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.

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 your papers on the web.Keep copyright on your own work and keep your papers on the web.

Enough for now.

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 Economists 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 more access for small colleges and poor countries.Price discrimination allows more access for small colleges and poor countries. Bundling allows big universities to get everything a publisher produces.Bundling allows big universities to get everything a publisher produces. Since cost of access for an extra subscriber is nearly zero, this raises efficiency.Since cost of access for an extra subscriber is nearly zero, this raises efficiency.

Benefits for Whom? Price discrimination allows publishers to raise price to big universities—releases the restraint previously imposed by threat of losing subscriptions at midsize universities.Price discrimination allows publishers to raise price to big universities—releases the restraint previously imposed by threat of losing subscriptions at midsize universities. Publishers can charge close to total willingness to pay of users at universities, leaving no net benefit to subscribers.Publishers can charge close to total willingness to pay of users at universities, leaving no net benefit to subscribers. This is worse for the academic community than the outcome if libraries refused to deal buy site licenses at monopoly prices.This is worse for the academic community than the outcome if libraries refused to deal buy site licenses at monopoly prices.

What should libraries do? Pay attention to prices per page and per cite when deciding what to subscribe to.Pay attention to prices per page and per cite when deciding what to subscribe to. Encourage departments to trade overpriced journals for cheaper new ones.Encourage departments to trade overpriced journals for cheaper new ones. Encourage or start new electronic journals.Encourage or start new electronic journals. Resist the Big Deal for overpriced journals. If you can’t resist, bargain hard and be “ready to walk”.Resist the Big Deal for overpriced journals. If you can’t resist, bargain hard and be “ready to walk”.

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 $)