Some Economics of OSA’s Journals

1. Some Economics of OSA’s Journals Ted Bergstrom Professor of Economics, UCSB

2. Research Team Our Research Team in Action

3. Professional Societies:A Success Story? • They publish the best journals in their areas. • They manage to make a profit doing so. • Still they are priced far lower than the for-profit journals.

4. Pricing and Citations Barshall’s Physics Journals--updated to 2002 100 Optics-related Journals

5. Costs of a Complete Economics Collection

6. Each type plays a major role • Non-profits supply most of the citations. • For-profits collect most of the money.

7. What do your colleagues think? OSA Survey: Which kind of journal do you think is more costly to libraries? ___Non-profit journals ___They cost about the same ___For-profit journals

8. Which costs more? Librarians say: Physics Dept Chairs say:

9. What do we conclude? __Librarians are brighter than dept chairs? Overpricing arises when users do not know costs of what they demand. (other examples, textbooks, medicine.) _ ___Societies should advertise their lower prices? __ Scientists should avoid donating labor to overpriced journals?

10. How do OSA prices compare?

11. Optics Express and Open Access • Great idea. Societies don’t need to sell all of their products to cover costs. • Other societies should learn from this. • OSA price/performance statistics should be adjusted (price/page down by ~10%) to account for this free 1600 page journal.

12. Pages published by U.S. Societies

13. Not all is bright • OSA subscription numbers are falling • OSA institutional prices have been rising at 8.5% per year in recent years • Access to electronic editions is remarkably sparse • Many respectable universities do not have access to all of top 4 journals • Very few subscriptions to JON, JOT, O&S

14. AO

15. OL

16. Market Penetration of Top 4 OSA Journals

17. Market Penetration of Other OSA Journals

18. Quiet Life The best monopoly profit is a quiet life… Sir John Hicks, 1932

19. What’s the 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. A Vicious Circle • Electronic access and rising costs of for-profit journals lead big wealthy universities to drop multiple subscriptions. • To make up lost revenue, societies raise subscription rates. • Price rise forces small universities to drop. • Subscriptions fall further, new price rises.

21. 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.

22. Profit-Readership tradeoff • Academic societies want to maximize readers, subject to making some limited profit. • Authors want readers. Readers want access. • Commercial publishers want simply to maximize profits.

23. Profit-Readers Frontier Efficient Commercial pub Profits Many Commercial pubs Efficient Society pub Typical Society Pub Open Access # of readers

24. A Better Pricing Method • Different prices to buyers with differing willingness to pay. • Two-part tariff principle. If you pay the entry fee, you get to “buy” everything at marginal cost. Package would include • Full electronic access to all OSA products • Purchase of as many print copies as you like at marginal cost (about $.01 per page.)

25. Simple Proposal--Part I • For Current subscribers, charge a subscription fee equal to the total amount they paid for OSA journals in 2002. • In return, give them the paper subscriptions they had in past plus electronic access to all OSA journal, including archive. • Also allow them to purchase as many additional paper copies of journals as they like at true marginal cost (about $.01-.02 per page

26. Simple Proposal--Part II • For those not subscribed in 2002, offer electronic access to Infobase at an extremely low price, say $100-200 a year. • Enough to cover cost of handling subscription and server capacity, plus small profit. • Publicize this offer extensively .

27. Simple Proposal—IIIThe Longer Run • In the long run, prices should be adjusted to more recent experience. • Suggestion use a weighted average of 2002-based price and post 2002 usage data to determine prices. • As time passes, weight on usage increases. • Note that you can’t get usage data until you actually have electronic subscriptions.

28. 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.

29. APS and AIP Tiered Prices

30. Serials budget range

31. 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.

32. 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. • Regression models leave large residuals.

34. How radical is our 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. Enough for now.

36. 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

37. 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.

38. References • Free Labor for Costly Journals, by Ted Bergstrom—J Economic Perspectives, Fall 2001. (at • Comments on above article JEP Fall 2002. • At http://www.econ.ucsb.edu/~tedb/Journals/sitelicense.html • 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 viewSpeech by Derk Haank.

39. JournalPrices by Discipline (In US $) Costper page Cost per cite For-profit Non-profit For-profit Non-profit