The Peculiar Market for
Academic Journals
Ted Bergstrom
UCSB

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

Pricing of Paper Editions
• In 2004, of the 25 most-cited journals in economics, 18 are owned by non-profit groups.
• Average price to libraries is $300 per year.
• Only 7 of the top 25 journals are owned by commercial publishers.
• Average price to libraries is $1900 per year.

Costs of Economics Journals in 2000
Publisher
Type
Non-Profit
For-Profit
Number of
Journals
91
206
Price per
Page
Price per
Cite
$0.18
$0.15
$0.82
$2.40

Journal Prices by Discipline
(In US $)
Cost per page Cost per cite
For-profit Non-profit For-profit Non-profit
Ecology
Economics
Atmosph. Sci
Mathematics
Neuroscience
Physics
1.01
0.19
0.73
0.05
0.83
0.17
2.33
0.15
0.95
0.15
0.88
0.07
0.70
0.27
1.32
0.28
0.89
0.10
0.23
0.04
0.63
0.19
0.38
0.05

The Cost of Going Online
• In 1998 almost no journals were online. In
2002, almost all were.
• Top non-profits $0.10/page in 1998 and
$0.12 in 2002 --paper plus online.
• Top for-profits $0.79/page in 1998 and
$0.89 in 2002 --paper plus online.
• Conclusion : Going online cost about $.02 per page. Prices of for-profits are not determined by costs.

Costs of a Complete
Economics Collection
Publisher
Type
Non-Profit
For-Profit
Percent of
Cost
9%
91%
Percent of
Cites
62%
38%

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 Nations
• Illustrated by academic journals:
• Non-profits supply most of the citations.
• For-profits collect most of the money.

Survey of Physics Chairs and
Librarians*---Optical Society of
America
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.

Which costs more?
Librarians say:
Non-profits
About same
For-profits
Physics Dept Chairs say:
0%
4%
96%
Non-profits 8%
About same 38%
For-profits 53% n s p o e e s y
R s

What do we conclude?
• Librarians are brighter than physics chairs?
• Choosers don’t know the costs of what they demand. (also true of textbooks, medicine)
• Scholars donating articles and referee reports to overpriced journals don’t know they are being exploited.
• Libraries and societies should publicize the facts of journal pricing.

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

Elsevier Financial Statement
• Elsevier reports revenue 2 billion
Euros in 2002.
• Claims to have 3d biggest internet revenues, behind AOL and Amazon.
• 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?
• Smaller subscription bases, due to high price
• Rent 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.
• Coordination and reputation makes it hard for new entrant to attract top quality articles.

Economic weirdness?
• If a Volvo cost 6-15 times as much as a
Saab, how many Volvos would be sold?
• Almost zero, because people would substitute Saabs for Volvos.
• Why then do commercial journals that cost 6-
15 times as much per cite as nonprofits continue to sell?

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.
• Scientists want to read ALL significant research in their area.

New Journal Pricing Models
• 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

Benefits of Price
Discrimination and Bundling
• Price discrimination allows access for small colleges, poor countries.
• Bundling allows big universities to get everything a publisher produces.
• 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.
• 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.

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.
“
Ken Frazier, head librarian, University of Wisconsin.

Price discrimination by nonprofits
• With non-profits, a different story.
• Price discrimination & bundling improve efficiency and access.
• 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.

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

Follow the money…
• Ordinary goods
• Academic Journals

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

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 $40 per year.
• But will they pay $1500 as for PLOS.

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.

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 exhorbitant fees.

Entry of New Journals
• The most interesting defense for
Elsevier is that they have introduced more new journals than the non-profits
• Was this a good thing in the past?
• Is it still a good thing?

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

Entrepreneurship
• In the 1970’s the economics profession grew rapidly . Society journals did not grow as fast.
• Specialized field journals were rare.
• North-Holland (and others now merged into
Elsevier) started about 30 new journals.
• About 12 of these are now leading field journals.

Rewards to innovation
• In 1985, the new commercial journals cost about 3 times as much per page as their nonprofit counterparts.
• Now about 6 times as much and increasing by
6.5% per year.

Why didn’t economics societies start more journals and add more pages?
• Confidence that private sector would do as well as non-profit.
• Elitist views of old-guard leadership.
• Short, traditionally honorary, terms of society leaders.

Pages published by U.S. Societies
Discipline Society members
Pages published
Microbiology 42,000 53,000
Physics-APS 40,000 96,600
Math-AMS 30,000 12,000
Optics-OSA 13,000 19,000
Econ-AEA 18,800 4,300
Entomology 6,500 4,100
Polit. Science 14,000 2,000

New Journals, Bundling, and
Electronic access
• Commercial publishers can start new journals and add to the “Big Deal” bundle.
• They can monitor downloads at each university and adjust that university’s price to capture total benefit.
• Solves coordination of subscriptions.
• Who gains from existence of new journal?

Bundling and Entry
Deterrence
• Elsevier’s bundling policy deters potential entrants.
• 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.

Non-profit startups
• Tough for independent new entrant.
• Possible for society if it is willing to bundle and price discriminate.
• Open access model may solve the problem for independents.

Had enough?
• OK, then, I’ll quit

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

Collective Action?
• 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.

What should scholars do?
• Refuse to referee for overpriced journals.
• Encourage cheap journals.
– Referee for them.
– Cite them.
– Publish in them.
• 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.

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.

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!