1. The Peculiar Market for Academic Journals Ted Bergstrom UCSB

2. 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.

3. Let’s Compare Some Prices

5. Journal Prices by Discipline Ecology 1.010.190.730.05 Economics 0.830.172.330.15 Atmosph. Sci 0.950.150.880.07 Mathematics 0.700.271.320.28 Neuroscience 0.890.100.230.04 Physics 0.630.190.380.05 Costper page Cost per page For-profit Nonprofit Non-profitFor-profitNon-profit Cost per cite (In US $)

6. Costs of a Physics Collection: Barschall’s List PublisherType Percent of Cost Percent of Cites Non-Profit39%79% For-Profit61%21%

7. 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 academic journals:Illustrated by academic journals: 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.

8. Which kind of journal do you think is more costly to libraries? ___Non-profit journals ___They cost about the same ___For-profit journals *Replies received from 69 librarians and 26 physics chairs. Survey of Physics Chairs and Librarians*---Optical Society of America

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

10. What do we conclude? Librarians are brighter than physics chairs?Librarians are brighter than physics chairs? Overpricing arises when users don’t know the costs of what they demand. (also true of textbooks, medicine) Overpricing arises when users don’t know the costs of what they demand. (also true of textbooks, medicine) Scholars who donate their articles and referee services to overpriced commercial journals don’t realize that they are being exploited.Scholars who donate their articles and referee services to overpriced commercial journals don’t realize that they are being exploited. Libraries and societies should publicize the facts of pricing.Libraries and societies should publicize the facts of pricing.

11. 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.

12. Elsevier Financial Statement Elsevier reports revenue 2 billion Euros in 2002.Elsevier reports revenue 2 billion Euros in 2002. 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.

13. 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

14. If there is free entry, how can there be monopoly? Unlike shoes or groceries, competition from perfect substitutes is prevented by copyright.Unlike shoes or groceries, competition from perfect substitutes is prevented by copyright. Reputation makes it hard for new entrant to attract top quality articles.Reputation makes it hard for new entrant to attract top quality articles. Rents fall to owner of a coordinating signal– a journal name.Rents fall to owner of a coordinating signal– a journal name. Like the rents to record companies for talent- free musicians who are popular because they are popular?Like the rents to record companies for talent- free musicians who are popular because they are popular?

15. 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.

16. 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!

17. 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 6- 15 times as much per cite as nonprofits continue to sell?Why then do commercial journals that cost 6- 15 times as much per cite as nonprofits continue to sell?

18. 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.

19. Society Journals’ 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.

20. Price Changes 1992-2002 Optics-related Journals Average non-profit price per page increased from $0.17 to $0.38. Average for-profit price per page increased form $0.63 to $1.46.

21. Price Changes 1992-2002 Misleading use of Percentages Percent change in price/page Dollar Change in price/page Nonprofit Journals 124% $0.21 Commercial Journals 130% $0.83

22. 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.

23. 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 to maximize profits.Commercial publishers want to maximize profits.

24. 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 $$

25. 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?

26. Increasing access without losing revenue Make part of journal open access? Make part of journal open access? Open access in poor countries? Open access in poor countries? Open access to back issues—How far back?Open access to back issues—How far back? Other ideas? Other ideas?

27. A Better Pricing Method ? Different prices to buyers with differing willingness to pay. Two-part tariff principle. (Disneyland Model) Charge entry fee, then entrants can “buy” at marginal cost. Package would include –Full electronic access to all Society journals –Purchase of as many print copies as you like at marginal cost (about $.01 per page.)

28. Introductory Prices For those not subscribed in 2005, offer electronic access to at very low price, say $100-200 a year. –Enough to cover cost of handling subscription and server capacity, plus small profit. –Publicize this offer extensively.

29. 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.

30. APS and AIP Tiered Prices TierRatio to top price APS Ratio to top price AIP 511 4.96.60 3.88.58 2.80.56 1.69.55

31. 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

32. 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.

33. 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.

34. How radical is this 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.

35. 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 put all of your papers on the web.Keep copyright on your own work and put all of your papers on the web.

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

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

38. 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

39. Follow the money… Ordinary goodsOrdinary goods Academic JournalsAcademic Journals

40. 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?

41. 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 $35 per year in salary. Will they pay $1500 as for PLOS?Will they pay $1500 as for PLOS?

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