Some Economics of OSA

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Some Economics of OSAs Journals
Ted Bergstrom Professor of Economics, UCSB
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Research Team

Our Research Team in Action
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Professional SocietiesA 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.

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Pricing and Citations
Barshalls Physics Journals--updated to 2002
100 Optics-related Journals
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Costs of a Complete Economics Collection
Publisher Type Percent of Cost Percent of Cites
Non-Profit 9 62
For-Profit 91 38
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Each type plays a major role

• Non-profits supply most of the citations.
• For-profits collect most of the money.

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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

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Which costs more?
Librarians say
Non-profits 0
About same 4
For-profits 96
Physics Dept Chairs say
Non-profits 8
About same 38
For-profits 53
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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?
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How do OSA prices compare?
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Optics Express and Open Access

• Great idea. Societies dont 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.

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Pages published by U.S. Societies
Discipline Members Pages publ.
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
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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, OS

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AO
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OL
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Market Penetration of Top 4 OSA Journals
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Market Penetration of Other OSA Journals
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Quiet Life
The best monopoly profit is a quiet life
Sir John Hicks, 1932
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Whats 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.

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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.

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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.

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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.

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Profit-Readers Frontier
Efficient Commercial pub

Profits
Many Commercial pubs
Efficient Society pub
Typical Society Pub

Open Access
of readers
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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.)

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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

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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 .

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Simple ProposalIIIThe 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 cant get usage data until you
  actually have electronic subscriptions.

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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.

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APS and AIP Tiered Prices

Tier Ratio to top price APS Ratio to top price AIP
5 1 1
4 .96 .60
3 .88 .58
2 .80 .56
1 .69 .55
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Serials budget range

Type of School Ratio Median Serials Budget to Top 20 Median
Top 20 1
Carnegie Top Class (155 schools) 0.5
Masters I 0.04
Liberal Arts I 0.02
Junior Colleges 0.004
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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.

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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.

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How radical is our proposal?

• Q--If pricing based on previous expenditures is
  such a good idea, why havent others thought of
  it.
• ASomebody has.
• Q---Who?
• A---Elsevier.
• Of course they use it to maximize their profits,
  but you can use it to maximize your distribution.

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Enough for now.
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A Publishers 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

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A Librarians 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 Dealthe
  Big
• Deal serves only the Big Publishers.
• Ken Frazier, head librarian, University of
  Wisconsin.

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References

• Free Labor for Costly Journals, by Ted
  BergstromJ Economic Perspectives, Fall 2001.
  (at
• Comments on above article JEP Fall 2002.
• At http//www.econ.ucsb.edu/tedb/Journals/siteli
  cense.html
• Do university site licenses benefit the academic
  Community? by Carl Bergstrom and me
• The Librarians 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.

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Journal Prices by Discipline
(In US )
Cost per page
Cost per cite

For-profit
Non-profit
For-profit
Non-profit
Ecology 1.01 0.19 0.73 0.05
Economics 0.83 0.17 2.33 0.15
Atmosph. Sci 0.95 0.15 0.88 0.07
Mathematics 0.70 0.27 1.32 0.28
Neuroscience 0.89 0.10 0.23 0.04
Physics 0.63 0.19 0.38 0.05