Mark J. McCabe

Journal Pricing and Mergers: A Portfolio Approach

Despite their influence on the careers of economists, the production and pricing of scholarly journals have received scant attention from the profession. By contrast, the issue of journal quality and scholarly research productivity have been studied in far greater detail (a search in the EconLit database using the term “journal” generates several dozen papers on this topic). Although there may be a number of reasons for this “imbalance,” it is likely that the tenure process, combined with the low (if not zero) effective cost of journals on campuses have influenced our research agenda. In other words, while professors worry about their job security (publish well, or perish), others—their librarians—are charged with maintaining “free” access to all relevant journals. Of course, this pattern is observed not just in economics but across academic disciplines. In recent years, however, easy access to journals has been threatened. Beset by persistent journal price inflation (especially in the socalled STM fields, or science, technology, and medicine) and stagnant budgets, many university libraries have been forced to reallocate dollars from monographs to journals, to postpone the purchase of new journal titles, and in some cases, to cancel titles. As a consequence, libraries often relied on interlibrary loans to satisfy faculty demands. This situation and its possible causes has been studied at great length in the library science literature. With few exceptions, a consensus has evolved there which focuses on the growing importance of commercial publishers in the market for scholarly journals: Over the past decade or more, commercial firms have aggressively raised prices at a rate disproportionate to any increase in costs or quality. This appears to be especially true for the largest commercial firms. Although the analysis underlying these conclusions is generally not of the multivariate sort, it is suggestive enough to warrant further investigation. * School of Economics, Georgia Institute of Technology, 781 Marietta Street NW, Atlanta, GA 30318 (e-mail: mark.mccabe@econ.gatech.edu). I would like to thank many of my former colleagues at the Department of Justice, including Craig Conrath, Renata Hesse, Aaron Hoag, Russ Pittman, David Reitman, Dan Rubinfeld, and Greg Werden, as well as Jonathan Baker, Cory Capps, George Deltas, Luke Froeb, Jeffrey Mackie-Mason, Roger Noll, Dan O’Brien, Richard Quandt, Lars-Hendrik Roller, Steve Salop and Margaret Slade; seminar participants at the Federal Trade Commission, Georgia Tech, North Carolina State University, SUNY Stony Brook, and Wissenschaft Zentrum Berlin; and participants at the meetings of the American Economic Association, the European Association of Research in Industrial Economics, the Southern Economics Association, and Western Economics Association. The Association of Research Libraries and its members, the National Library of Medicine, the Georgia Tech Library, and the Georgia Tech Foundation have provided invaluable assistance. Expert data support was provided by a large group of individuals, including Deena Bernstein, Claude Briggs, Pat Finn, Doug Heslep, and Steve Stiglitz. Finally, I would like to thank the dozens of librarians and publishers who have provided me with important insights. 1 The exceptions are Janusz A. Ordover and Robert D. Willig (1978), Lisa Lieberman et al. (1992), George A. Chressanthis and June D. Chressanthis (1994), McCabe (2000), and Theodore C. Bergstrom (2001) . Ordover and Willig model the pricing of a single title to institutional and individual subscribers; Bergstrom’s paper discusses the differences between commercial and nonprofit economics journals. The other three papers are discussed below. 2 Increasingly, journals are available in both print and digital versions, and for some new titles only a digital format is available. See Carol Tenopir and Donald King (2000 Ch. 15). Starting in 1998, commercial publishers began placing their content online. Although major research libraries have generally responded by adding digital access, this shift is still in its early stages, especially in cases where library collections are more specialized, e.g., the typical biomedical library. For this reason, as well as the fact that more than two-thirds of the sample period occurred in a print-only environment, the emphasis of this paper is on the behavior of publishers and libraries in a print environment. The economic implications of digital access are considered briefly at the conclusion of the paper and are a subject of ongoing research. 3 See Martha Kyrillidou (1999). 4 See Tenopir and King (2000 Ch. 13), for a review of this literature. An alternative explanation for journal price inflation has been offered by Lieberman et al. (1992). They argue that entry by new titles over time has lowered circulation for existing journals, forcing the latter to raise prices to cover fixed costs.

Open Access and Academic Journal Quality

ing from complicated signaling behavior by informed authors. Lerner and Tirole show that adding upstream private information does not alter their basic analysis (their Proposition 4). 454 AEA PAPERS AND PROCEEDINGS MAY 2005

Open Access as a Crude Solution to a Hold-up Problem in the Two-Sided Market for Academic Journals

A new business model for scholarly journals, open access, has gained wide attention recently. An open-access journal’s articles are available over the Internet free of charge to all readers; revenue to cover publication costs comes from authors’ fees. In this paper, we present a model of the journals market. Drawing upon the emerging literature on two-sided markets, we highlight the features distinguishing journals from examples economists have previously studied (telephony, credit cards, etc.). We analyze the efficiency of equilibrium author and reader fee schedules for various industry structures and for various assumptions about journals’ objective functions. We ask whether open-access journals are viable in these various economic environments.

Academic Journal Prices in a Digital Age: A Two-Sided-Market Model

Digital-age technologies promise to revolutionize the market for academic journals as they have other media. We model journals as intermediaries linking authors with readers in a two-sided market. We use the model to study the division of fees between authors and readers under various market structures, ranging from monopoly to free entry. The results help explain why print journals traditionally obtained most of their revenue from subscription fees. The results raise the possibility that digitization may lead to a proliferation of online journals targeting various author types. The paper contributes to the literature on two-sided markets in its analysis of free-entry equilibrium and modeling of product-quality certification.

Do American and European Industrial Organization Economists Differ

This paper compares results from two surveys among American and European industrial organisation (IO) economists on various IO and broader economic issues. Although differences between the two groups are generally rather small, some systematic differences seem to exist. These differences are more pronounced when judgments about the efficacy of government policies and the workings of the market are concerned than when judgments about methodology and the present and future state of the IO field are concerned. American IO economists tend to exhibit more confidence in the markets capability to allocate resources than their European counterparts.

Does Online Availability Increase Citations? Theory and Evidence from a Panel of Economics and Business Journals

Does online availability boost citations? The answer has implications for issues ranging from the value of a citation to the sustainability of open-access journals. Using panel data on citations to economics and business journals, we show that the enormous effects found in previous studies were an artifact of their failure to control for article quality, disappearing once we add fixed effects as controls. The absence of an aggregate effect masks heterogeneity across platforms: JSTOR stands apart from others, boosting citations around 10%. We examine other sources of heterogeneity including whether JSTOR increases cites from authors in developing more than developed countries and increases cites to “long-tail�? more than “superstar�? articles. Our theoretical analysis informs the econometric specification and allows us to translate our results for citation increases into welfare terms.

Academic Journal Pricing and the Demand of Libraries

The prices of for-profit academic journals have increased rapidly over the past decade (Barbara Albee and Brenda Dingley, 2001). There remains substantial debate as to the explanation for these increases. Among those put forward are the increased concentration of the journal industry (see e.g., McCabe, 2002) and the relatively recent effort by major publishers to bundle print and electronic journals (Aaron S. Edlin and Rubinfeld, 2004). While both explanations are undoubtedly important, what is missing is the significant role of the primary customers of journal publishers—the academic libraries. As agents of college and university faculties, libraries serve the interests of their principals while having only limited information about faculty journal demands. Facing little or no hard budget constraint, faculty are unlikely or unwilling to make difficult allocative choices. As a result, libraries have been making hard choices for years (between journals and books, and among journals), in a world of increasing budgetary pressure. Given that electronic transmission of knowledge is becoming increasingly important, an understanding of the reasons for the increases in journal prices is a vital element in the ongoing discussion of best mechanisms by which scholarly communications can be disseminated. In this paper, we formulate a model of library journal demand and suggest how it can be used to analyze the optimal pricing of journals by publishers. This represents part of a larger project whose long-range goal is to explain the pattern of journal pricing over time, and to evaluate two broad policy questions: (i) To what extent have mergers and/or bundling practices been responsible for the increase in journal prices? (ii) To what extent are journal prices likely to change in response to changing library acquisition strategies (reallocation of budgets between serials and books, journal sharing among libraries, setting hard budgets, etc.)?

Open Access Versus Traditional Journal Pricing: Using a Simple 'Platform Market' Model to Understand Which Will Win (and Which Should)

Economists have built a theory to understand markets in which, rather than selling directly to buyers, suppliers sell through a platform, which controls prices on both sides. The theory has been applied to understand markets ranging from telephony, to credit cards, to media. In this paper, we apply the theory to the market for scholarly journals, with the journal functioning as the platform between submitting authors and subscribing readers. Our goal is to understand the conditions under which a journal would prefer open access to traditional pricing and under which open access would be better for the scholarly community. Our new model captures much of the richness of the existing economic literature on journal pricing, and indeed adds some fresh insights, yet is simple enough to be accessible to a broad audience.

A Model of Academic Journal Quality with Applications to Open-Access Journals

Previous research modeled academic journals as platforms connecting authors with readers in a two-sided market. This research used the same basic framework also used to study telephony, credit cards, video game consoles, etc. In this paper, we focus on a key difference between the market for academic journals and these other markets: journals vary in terms of quality, where a journals quality determined by the quality of the papers it publishes. We provide a simple model of journal quality. As an illustration of the value of the model, we use it to address issues that have arisen in the recent debate concerning whether, in the Internet age, journals should become open access (freely available to readers, financed by author rather than subscriber fees). Among other issues, we examine (a) whether open-access journals would tend to publish more articles than traditional journals, moving further down the quality spectrum in order to boost revenue; (b) whether journal quality affects the profitability of adopting open access; and (c) whether submission fees or acceptance fees are better instruments to extract surplus from authors.

Law Serials Pricing and Mergers: A Portfolio Approach

Abstract Using data from more than 400 legal serials, I estimate the impact of six publisher mergers on law serial prices during the period, 1990-2000. The results suggest that merger-related price increases were substantial during this period, even after accounting for secular price trends. Furthermore, these merger effects occurred across a broadly-defined portfolio of serial titles consisting of legal encyclopedias and treatises. For other types of serials, such as newsletters and looseleaf services, these effects were not observed. Based on the portfolio demand behavior of buyers, I offer an explanation for this result based on the degree of product differentiation at the level of the individual title. Of particular interest is the purchase of West Publishing Company by Thomson Financial & Professional Publishing Group in 1996. Despite a government-mandated divestiture of more than 50 titles, the results indicate that titles published by West-Thomson experienced a significant post-merger price increase.