Transcript Electronic Journal Site Licenses: A Boon for Whom?

Electronic site licenses: Big
Deals and Raw Deals
Ted Bergstrom
UCSB
Industry Leaders
Conferring with an industry leader
Pricing of Paper Editions
• The 6 most-cited journals in economics are
owned by non-profit groups.
• Average price to libraries is $180 per year.
• Only 5 of the 20 most-cited journals are
owned by commercial publishers.
• Average price to libraries is $1660 per year.
Costs of Economics Journals
Publisher
Type
Number of
Journals
Price
per
Page
Price per
Cite
Non-Profit
91
$0.18
$0.15
For-Profit
206
$0.82
$2.40
Costs of a Complete
Economics Collection
Publisher
Type
Percent of
Cost
Percent of
Cites
Non-Profit
9%
62%
For-Profit
91%
38%
Journal Prices by Discipline
(In US $)
Cost per page
For-profit
Ecology
Economics
Atmosph. Sci
Mathematics
Neuroscience
Physics
1.01
0.83
0.95
0.70
0.89
0.63
Non-profit
0.19
0.17
0.15
0.27
0.10
0.19
Cost per cite
For-profit
Non-profit
0.73
2.33
0.88
1.32
0.23
0.38
0.05
0.15
0.07
0.28
0.04
0.05
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.
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.
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
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.
Pricing of Electronic Journals
• 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
this amount we will allow all your people to use our
material, unlimited… And, basically the price then depen
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 acces
to
all of a commercial publisher's journals for a price bas
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. “
An Economist’s View
• “Morality” of price discrimination and bundling is
not the issue.
• Benefits and costs to the academic community
what concerns us.
• Profitability is what concerns
commercial publishers.
Benefits of Price
Discrimination and Bundling
• Price discrimination allows access
for sm
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 license
and forced seller to
deal with one user at
time.
Price discrimination by nonprofits
• With non-profits, a different story.
• Price discrimination & bundling improve
efficiency and access.
• Library site licenses provide revenue
to cove
costs and if properly priced, allow access to
nearly everyone.
• Probably should be priced at marginal cost
(free?) to small libraries.
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.
What should libraries do?
• Pay attention to prices per use.
• Decentralize some decision-making
to
department levels.
• Replace “allocation by whining”
with real
monetary tradeoffs.
• Money saved by dropped subscrips could
subsidize pay-per-view or new
journals.
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.
Individual Bargaining
• With price discriminating publishers, bargaining
becomes possible.
• There are mutual gains, don’t let the publisher
get them all.
• To bargain well, you must be
“prepared to
walk.”
Bargaining tips,
Elsevier Elsewhere?
• Determine what you’ll do if
bargaining
breaks down.
• If no deal, outcome isn’t “No access”.
– Individuals can subscribe.
– Pay-as-you-go access to journals is possible.
– Money saved on subscriptions can go to
departmental “Elsevier Elsewhere funds.”
•
Set a reservation price that you like much bette
than the no deal option.
Bargaining
• Remember publisher would much
prefer a Big Deal to dealing with
customers one at a time.
• Stick to your guns. Refuse to pay more than yo
reservation price.
• Enlist faculty support.
• Consider hiring a bargaining expert.
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 yo
papers on the web.
References
• Free Labor for Costly Journals, by Ted Bergstrom—
Economic Perspectives, Fall 2001
• Comments on above article JEP Fall 2002.
• At http://www.econ.ucsb.edu/~tedb/Journals/sitelicense.html
J
– 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.