1. To Have and be Had: Some Economics of Academic Journals
Ted Bergstrom
UCSB

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

3. Contrasting Prices
(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

4. Costs and Benefits from a complete Economics collection 2004
Share of
Cost
Share of Pages
Share of Cites
Nonprofit
11%
32%
45%
For profit
89%
68%
55%

5. Division of Labor Illustrated by academic journals:
The 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 academic journals:
Non-profits supply most of the citations.
For-profits collect most of the money.

6. Monopoly Profits in Academic Publishing?
Hint: University press and professional society journals are usually not subsidized and often make profits
They charge less than 1/3 as much per page as for-profit journals.

7. Elsevier Financial Statement for 2005
Reported revenue: $2.67 billion
Reported profits : 31% of revenue.
A remarkable rate. Remember profit is revenue above costs.
Not so surprising since they charge 3 times as much per page as non-profits.

8. Why are profits only 31% and not 66%?
They charge 3 times as much as non-profits. Non-profits at least cover costs.
Why aren’t Elsevier costs be about 1/3 and profits about 2/3 of revenue?
High prices reduce subscriptions. Revenue rises by proportionately less than price.
Also Elsevier has large lobbying expenditures, high executive pay etc. all counted as costs.

9. If there is free entry, how can there be monopoly?
Unlike shoes or groceries, competition from perfect substitutes is prevented by copyright.
Reputation makes it hard for new entrant to attract top quality articles.
Rents fall to owner of a coordinating signal– a journal name.

10. 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?
Almost zero, because people would substitute low priced for high priced.
Why then do commercial journals that cost 6-15 times as much per cite as nonprofits continue to sell?

11. Journals as Complements
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.
Many scientists want to read all significant research in their area, not just the top papers.

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

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

14. Non-profit open access?
To succeed, an open access journal must attract authors.
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 $35 per year in salary.
Will they pay $1500 as for PLOS?

15. Open access and competition
Competition for authors will be stiffer than for readers.
Would an author submit papers to a journal with submission fees 6-15 times as high as equivalent competitor?
Not likely. Why?
For authors, journals are substitutes, not complements.

16. University-paid author fees
University could limit amount it would pay per page.
Authors can choose to top up fees.
As outlets, competing journals are substitutes, not complements
Price competition for author fees is likely to prevent extreme fees.

17. 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.
Better outcome if Elseviers are forced to deal with individuals.
For nonprofit journals, the conclusion is opposite.
For these site licenses enhance efficiency by improving access without increasing cost.

18. Polysyllabic Thunder
After UC signed its latest Big Deal with Elsevier for $7.3 million, the official UC statement was:
“ the economics of scholarly journals publishing are incontrovertibly unsustainable”
Wow.
Does this mean something, or is it just deanspeak?

19. What can UC do?
UC is a giant— prestige, research output, research readership.
Individual journals need UC more than UC needs individual journals.
Journals not stocked by UC won’t attract top authors.
Big publishers have bundled their weak journals with their strong to avoid this vulnerability.

20. Shorter words, tougher acts
Set minimal acceptable standards of value-per-dollar
Refuse Big Deals. Subscribe only to journals that meet minimal value-per-dollar standards.
Charge overhead for UC faculty serving on editorial boards of journals not meeting standards.

21. Possible Tactics
Might start with middle-sized publishers: Taylor & Francis, Springer, Wiley, Sage
Subscribe to their “good deal” journals at list prices.
Offer UC-determined value-based price for a package of their remaining journals.
What would it mean to journals lose their UC subscription base?
How bad would it be for UC?

22. Why we can afford to cancel
Subscriptions much less important than they were.
Scholars can still get pay-per-view—could be partially subsidized.
Most articles can be found online for free—or at worst, obtained by from author.

23. Overhead for overpriced?
Universities charge overhead on
research grants.
They charge no overhead for journal editors and often give courses off.
This makes sense for publishers that cooperate in academic enterprise
But not for publishers that are extracting maximal rents.

24. One way to set standards
Preston McAfee and I have proposed a measure at
Compares value per dollar with that of non-profits in same field.
Select cutoff for good and bad buys.

25. Or we could just keep making Big Deals, even if they are “incontrovertibly unsustainable”
Elsevier statement after the last UC Big Deal:  "Although the negotiation period was challenging for both parties, the tone of the discussion was professional and cordial throughout."
At least we didn’t get our pockets picked by surly amateurs.
Maybe being had is not so bad.

26. Had enough?
OK, then, I’ll quit

27. Want more? www.econ.ucsb.edu/~tedb …papers, statistics,
weasel’s manual, etc

28. 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 City
They had a grand time.
Next year more anarchists came and they had even more fun.
The tradition grew and meetings got bigger and more enjoyable.

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