Academic Journal Pricing and Market Power

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Academic Journal Pricing and Market Power

• Arne Jakobsson
• University of Oslo Library
• Library of Medicine and Health Sciences

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Academic Journal Pricing and Market Power

• Mark J. McCabe - Academic Journal Pricing and
  Market Power A Portfolio Approach. School of
  Economics, Georgia Institute of Technology, 2000.
  http//www.prism.gatech.edu/mm284/JournPub.PDF
• Published in the American Economic Review, Vol.
  92, No. 1, March, 2002.

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The effective cost of journals!

• Professors worry about their job security
  (publish well, or perish), others -- their
  librarians -- are charged with maintaining free
  access to all relevant journals

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Aggressive price increases

• Over the past decade or more, commercial
  publishers have raised their prices aggressively
  at a rate disproportionate to any increase in
  costs or quality. This appears to be especially
  true of the largest commercial companies
• What role has the exercise of market power by
  publishers played?

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Underlying demand behaviour of libraries

• Library demand for academic journals is unique.
• Although individual users are interested in only
  a handful of STM journals, libraries maximize the
  usage of broadly defined collections, e.g. all
  biomedical journals, subject to budget
  constraint.
• The result is demand for a portfolio of titles.
• Libraries avoid cancelling a subscription once
  started

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Publishers pricing strategies

• Publishers pricing strategies are determined by
  the distribution of budgets and a titles
  relative quality.
• Budget distribution influences whether, for
  example, high quality titles choose low prices
  and sell to most libraries or set high prices
  and sell only to those institutions with the
  largest budgets.

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Pricing strategies

• The pricing model predicts that in some cases
  publishers controlling larger portfolios of
  journals have an incentive to charge higher
  prices, all else being equal.
• Past publishing mergers may account for some of
  the observed price increases

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Pricing strategies

• If one or more of the publishers raise the price
  of their titles, then the remaining publishers
  can increase their prices almost as much, without
  being overly concerned about cancellations.

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Two types of journal publishing companies

• Non-commercial publishers are mostly interested
  in disseminating knowledge
• Commercial publishers are primarily interested in
  profits

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Market power in the academic publishing market

• Profit-maximizing companies normally operate in
  the elastic region, so how can we account for
  this apparent contradiction of economic theory?
• One possibility is that budgets for journals are
  sufficiently soft from year to year for price
  increases to be generally accommodated, i.e.
  demand is inelastic for observed prices.
• Each year publishers set new (higher) prices and
  libraries, trying to preserve their existing
  collections, respond by increasing journals
  budgets.

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Market power in the academic publishing market

• The results indicate
• that the demand for journals is highly inelastic
• that quality- and cost-adjusted price increases
  have been substantial over the past decade
• that past mergers have contributed to these price
  increases.

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Effects of two mergers 1980-81

• Reed/Elsevier and Pergamon
• Elsevier price increase 5,2
• Pergamon price increase 27
• Kluwer and Lippincott
• Lippincott price increase 30
• Kluwer prices dropped slightly

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Antitrust decisions

• 1998 the proposed merger between Reed Elsevier
  and Wolters Kluwer collapsed
• To avoid future antitrust scrutiny the Elseviers
  of the journal publishing world are likely to
  grow by adding relatively small numbers of
  journals at frequent intervals. If pursued
  diligently, this stealthy strategy can be just as
  successful as any blockbuster merger.

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McCabe states in his findings that

• Demand for journals is highly inelastic
• Prices are indeed positively related to a
  publishers portfolio size
• Mergers result in significant price increases
• This was true even though many of the publishers
  had relatively modest numbers of journals

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Reed Elsevier

• Academic Press
• Beilstein
• BioMed Net
• Butterworth
• Cahners
• Cell Press
• Chilton
• Churchill Livingstone
• CIS
• Elsevier Science
• Engineering Information
• Harcourt,
• Holt LexisNexis
• JAI Press
• Martindale Hubbell
• Mosby
• Pergamon Press
• Rinehart Winston
• Saunders

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Reed Elsevier Result 2004

• Reed Elsevier
• Listed on the London and Amsterdam Stock
  Exchanges
• Sales 7 074m Euro
• Employees 35 000
• Operating margin 24
• Operating margin in Science Medicine 34
• Profit 1 704m Euro
• Dividends 454m Euro
• Dividend per share up from 0.30 Euro to 0.33
  Euro 2004
• Acquisition spend 970m Euro
• Free cash flow 546m Euro
• Institutional budgetary pressure in part
  countered by widening distribution

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Wolters Kluwer

• Aspen Publishing
• CCH
• Lippincott Williams and Wilkins,
• Ovid
• SilverPlatter
• Waverly

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Taylor Francis

• Today one of the three biggest publishers in the
  world
• Brunner-Routledge
• Carfax
• CRC Press
• Europa Publications
• Frank Cass
• Martin Dunitz
• Psychology P
• Routledge
• RoutledgeCurzon,
• RoutledgeFalmer
• Scandinavian University Press
• Spon Press

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Springer

• In 2003 Springer merged its business with Kluwer
  Academic Publisher
• Spinger is owned by Candover and Cinven a venture
  capital invester

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Conclusion

• We experience astronomical price increases for
  journals in science and medicine
• When the demand is elastic, and the prices
  increase, revenues decrease, as customers respond
  to these price increases
• When demand is inelastic, however, and the prices
  increase, revenues increase, since customers
  continue to buy regardless of price
• Libraries and librarians have provided the
  publishers with an inelastic demand for journals