Consortial Access versus Ownership
This chapter reports on a consortial attempt to overcome the high costs of scholarly journals and to study the roots of the cost problem with the advent of high-speed telecommunication networks throughout the world. The literature on the problem of journal costs includes both proposals for new ways of communicating research results and many studies on pricing.
Prominent members of the library profession have written proposals on how to disengage from print publishers. Others have suggested that electronic publications soon will emerge and bring an end to print-based scholarship. Another scientist proposes that libraries solve the problem by publishing journals themselves. These proposals, however, tend not to accommodate the argument that loosely coupled systems cannot be easily restructured. While access rather than ownership promises cost savings to libraries, the inflation problem requires further analysis of the factors that establish journal prices before it is solved.
Many efforts to explain the problem occupy the literature of the library profession and elsewhere. The most exhaustive effort to explain journal price inflation, published by the Association of Research Libraries for The Andrew W. Mellon Foundation, provides ample data, but no solution. Examples of the problem appear frequently in the Newsletter on Serials Pricing Issues, which was developed expressly to focus discussion of the issue. Searches for answers appear to have started seriously with Hamaker and Astle, who provided an explanation based on currency exchange rates. Other analyses propose means to escape inflation by securing federal subsidies, complaining to publishers, raising photocopying charges, and convincing institutional administrators to increase budgets.
Many analyses attempt to isolate factors that determine prices and the difference in prices between libraries and individuals. Some studies look at the statistical
relevance of sundry variables, but especially publisher type. They confirm the belief that certain publishers, notably in Europe, practice price discrimination. They also show that prices are driven by cost of production, which is related to frequency of issue, number of pages, and presence of graphics. Alternative revenue from advertising and exchange rate risk for foreign publishers also affects price. Quality measures on the content, such as number of times a periodical is cited, affects demand that then impacts price. Economies of scale that are available to some journals with large circulation affects price. These articles help explain differentials between individual and library prices. Revenues lost to photocopying also account for some difference. Also, differences in the way electronic journals may be produced compared to print provides a point on which some cost savings could be based.
The costs of production and the speed of communication may be driving forces that determine whether new publications emerge in the electronic domain to replace print. However, in a framework shaped by copyright law, the broader issue of interaction of demand and supply more likely determines the price of any given journal. Periodical prices remain quite low over time when magazine publishers sell advertising as the principal generator of revenue. When for political or similar reasons, publication costs are borne by organizations, usually not scholarly societies, periodical prices tend to be lower. Prices inflate in markets with high demand such as the sciences, where multiple users include practicing physicians, pharmaceutical firms, national laboratories, and so forth.
Unfortunately for libraries, the demand from users for any given journal is usually inelastic. Libraries tend to retain subscriptions regardless of price increases, because the demand originates with nonpaying users. In turn, price increases charged to individual subscribers to scholarly journals drive user demands. Therefore, it might be expected that as publishers offer currently existing print publications in an electronic form, they will retain both their price as well as inelastic demand. Commercial publishers, who are profit maximizers, will seek to retain or improve their profits when expanding into the electronic market. However, there are some properties associated with electronic journals that could relax the inelasticity of prices.
This chapter describes a multidisciplinary study of the impact of electronic publishing on the pricing of scholarly periodicals. A brief overview of the pricing issue comparing print and electronic publishing is followed by a summary of the access approach to cost containment. A preliminary report on an attempt at this technique by a consortium and on an associated econometric study also is included.
Overview of Pricing Relevant to Electronic Journals
The industry of scholarly print publishing falls into the category of monopolistic competition, which is characterized by the presence of many firms with differentiated products and by no barriers to entry of new firms. As a result of product
differentiation, scholarly publishers do not encounter elastic aggregate demand typically associated with competitive markets. Rather, each publisher perceives a negatively sloped individual demand curve. Therefore, each supplier has the opportunity to partially control the price of its product, even though barriers to entry of new, competing periodical titles may be quite low. Given this control, publishers have raised their prices to libraries with some loss of sales but with consequent increases in profits that overwhelm those losses. They segment their market between individuals and libraries and charge higher prices to the latter in order to extract consumer surplus.
As publishers lose sales to individuals, scholars increase their dependency on libraries, which then increases interlibrary borrowing to secure the needed articles. Photocopies supplied via library collections constitute revenue lost to publishers, but is recaptured in the price differential. Additional revenue might accrue if publishers could offer their products in electronic databases where they could monitor all duplication. This potential may rest on the ability of publishers to retain control in the electronic domain of the values they have traditionally added to scholarship.
Scholars need two services from scholarly literature: (1) input in the form of documentation of the latest knowledge and/or information on scholarly subjects and (2) outlets for their contributions to this pool of scholarship. Partly in exchange for their trade of copyright, scholars receive value in four areas. First, scholars secure value in communication when every individual's contribution to knowledge is conveyed to others, thus impacting the reputation of each author. Second, although not provided by publishers directly, archiving provides value by preserving historically relevant scholarship and fixing it in time. Third, value accrues from filtering of articles into levels of quality, which improves search costs allocation and establishes or enhances reputation. Fourth, segmenting of scholarship into disciplines reduces input search costs to scholars. The exchange of copyright ownership for value could be affected with the emergence of electronic journals.
Electronic journals emerge as either new titles exclusively in electronic form or existing print titles transformed to electronic counterparts. Some new journals have begun exclusively as electronic publications with mixed success. The directory published by the Association of Research Libraries listed approximately 27 new electronic journals in 1991. By 1995 that figure had risen to over 300, of which some 200 claim to be peer reviewed. Since then hundreds more electronic journals have been added, but the bulk of these additions appear to be electronic counterparts of previously existing print journals. In fact, empirical work indicates that exclusively electronic publications have had little impact on scholarship.
The infrastructure of scholarly print publishing evolved over a long time. In order for a parallel structure to emerge in the electronic domain, publishers have to add as much value to electronic journals as they do print. Value must be added
in archiving, filtering, and segmenting in addition to communication. Establishing brand quality requires tremendous energy and commitment. Some electronic titles are sponsored by individuals who are fervent in their efforts to demonstrate that the scholarly community can control the process of communicating scholarship. However, it is unrealistic to expect an instantaneous, successful emergence of a full-blown infrastructure in the electronic domain that overcomes the obstacles to providing the values required by scholars. The advantage of higher communication speed is insufficient to drive the transformation of scholarship; thus traditional publishing retains an edge in the electronic domain.
A transformation is being achieved effectively by duplicating existing print journals in the electronic sphere, where publishers face less imposing investments to provide electronic counterparts to their product lines. For example, the Adonis collection on CD-ROM contains over 600 long-standing journals in medicine, biology, and related areas covering about seven years. Furthermore, EBSCO, University Microfilms (UMI), Information Access Company (IAC), Johns Hopkins University Press, OCLC, and other companies are implementing similar products. OCLC now offers libraries access to the full text of journal collections of more than 24 publishers. Johns Hopkins University Press has made all 46 plus titles that it publishes available on-line through Project MUSE.
During the past 15 years, libraries have experienced a remarkable shift from acquiring secondary sources in print to accessing them through a variety of electronic venues, which suggests that many scholarly periodicals will become available electronically as an automatic response to the economies available there. However, some monopoly power of publishers could be lost if barriers to the entry of new journals are lower in the electronic domain than in the print domain. With full text on-line, libraries may take advantage of the economies of sharing access when a group of libraries contracts for shared access to a core collection. Sharing a given number of access ports allows economies of scale to take effect. Were one access port provided to each member of a consortium of 15 libraries, the vendor would tie up a total of 15 ports, but any given library in the group would have difficulty servicing a user population with one port. Whereas by combining access, 15 libraries together might get by with as few as 10 ports collectively. The statistical likelihood is small that all 10 ports would be needed collectively by the consortium at any given moment. This saves the vendor some computer resources that can then lead to a discount for the consortium that nets out less cost to the libraries.
Numerous models for marketing exist, but publishers can price their products in the electronic domain fundamentally only two ways. Either they will offer their products on subscription to each title or group of titles, or they will price the content on an article-by-article transaction basis. Vendor collections of journals for one flat fee based on the size of the user population represents a variant on the subscription fee approach. Commercial publishers, who are profit maximizers, will choose the method with the higher potential to increase their profit. Transaction-based
pricing offers the possibility of capturing revenue lost to interlibrary lending. Also, demand for content could increase because of the ease of access afforded on-line. On the risk side, print subscription losses would occur where the cumulative expenditure for transactions from a given title is less than its subscription price.
Potentially, two mechanisms could flatten demand functions in the electronic domain. First, by making articles available individually to consumers, the separation of items of specific interest to given scholars creates quality competition that increases the elasticity of demand, because quality varies from article to article. Presumably, like individual grocery items, the elasticity of demand for particular articles is more elastic than that of periodical titles. Economists argue that the demand for tortillas is more elastic than for groceries in general because other bakery goods can be substituted, whereas there is no substitute for groceries in general except higher priced restaurant eating. Similarly, when faced with buying individual articles, price increases will dampen demand more quickly than would be the case for a bundle of articles that are of interest to a group of consumers.
Second, by offering articles in an environment where the consuming scholar is required to pay directly (or at least observe the cost to the library), the effect of separation of payer and demander common with library collections resulting in high inelasticity will be diminished. This mechanism will increase elasticity because scholars will no longer be faced with a zero price. Even if the scholar is not required to pay directly for the article, increased awareness of price will have a dampening effect on inelasticity. However, publishers may find it possible to price individual articles so that the sum of individual article fees paid by consumers exceeds the bundled subscription price experienced by libraries formerly forced to purchase a whole title to get articles in print.
For a product like Adonis, which is a sizable collection of periodicals in the narrow area of biomedicine, transaction-based pricing works out in favor of the consumer versus the provider, since there will likely be only a small number of articles of interest to consumers from each periodical title. This result makes purchasing one article at a time more attractive than buying a subscription, because less total expenditure will normally result. In the case of a product composed of a cross section of general purpose periodicals, such as the UMI Periodical Abstracts, the opposite will be true. The probability is higher that a user population at a college may collectively be interested in every single article in general purpose journals. This probability makes subscription-based pricing more favorable for libraries, since the cumulative cost of numerous transactions could easily exceed the subscription price. Publishers will seek to offer journals in accordance with whichever of these two scenarios results in the higher profit. Scientific publishers will tend to bundle their articles together and make products available as subscriptions to either individual journals or groups. Scholarly publishers with titles of general interest will be drawn toward article-by-article marketing.
An Elsevier effort to make 1,100 scientific titles available electronically will be
priced on a title-by-title subscription basis and at prices higher than the print version when only the electronic version is purchased. On the other hand, the general purpose titles included in UMI's Periodical Abstracts full text (or in the similar products of EBSCO and IAC), as an alternative interface to their periodicals, are available on a transaction basis by article. These two approaches seek to maximize profit in accordance with the nature of the products.
Currently, UMI, EBSCO, and IAC, which function as the aggregators, have negotiated arrangements that allow site licenses for unlimited purchasing. These companies are operating as vendors who make collections of general purpose titles available under arrangements that pay the publishers royalties for each copy of their articles printed by library users. UMI, IAC, and EBSCO have established license arrangements with libraries for unlimited printing with license fees based on expected printing activity, thus offering some libraries a solution to the fundamental pricing problem created by the monopoly power of publishers.
New research could test whether publishers are able to retain monopoly power with electronic counterparts to their journals. Theory predicts that in a competitive market, even when it is characterized as monopolistic competition, the price offered to individuals will tend to remain elastic. Faced with a change in price of the subscriptions purchased from their own pockets, scholars will act discriminately. Raise the price to individuals and some will cancel their subscriptions in favor of access to a library. In other words, the price of periodicals to individuals is a determinant of demand for library access. By exercising a measure of monopoly power in place of price, publishers have some ability to influence their earnings through price discrimination.
In contrast, publishers can set prices to libraries higher than the price to individuals as a means to extract consumer surplus. The difference in prices provides a reasonable measure of the extent of monopoly power, assuming that the individual subscription price is an acceptable proxy for the marginal cost of production. Even if not perfect, the difference in prices represents some measure of monopoly power. Extending this line of research may show that monopoly power is affected by the medium.
In monopolistic competition, anything that differentiates a product may increase monopoly power. Historically, tremendous amounts of advertising money are expended to create the impression that one product is qualitatively distinguishable from others. It may be that electronic availability of specific titles will create an impression of superior quality that could lead to higher prices. However, the prices of journals across disciplines also may be driven by different factors. In general, prices are higher in the sciences and technical areas and lower in the humanities. This price differential is understandable considering that there is essentially no market for scholarly publications in the humanities outside of academe, whereas scientific publications are used heavily in corporate research. As a result, monopoly power will likely be stronger in the sciences than in other areas. This
power would reflect additional price discrimination in the electronic environment by publishers who are able to capture revenue lost to photocopying.
Access Versus Ownership Strategy
Clearly, if commercial publishers continue to retain or enhance their monopoly power with electronic counterparts of their journals, the academic marketplace must adjust or react more effectively than it has in the past. The reaction of universities could lead to erosion of previous success achieved with price discrimination if an appropriate strategy is followed. Instead of owning the periodicals needed by their patrons, some libraries have experimented with replacing subscriptions with document delivery services. Louisiana State University reports canceling a major portion of their print journals. They replaced these cancellations by offering faculty and students unlimited subsidized use of a document delivery service. The first-year cost for all the articles delivered through this service was much less than the total cost to the library for the former subscriptions. Major savings for the library budget via this approach would appeal to library directors and university administrators as a fruitful solution. However, it may turn out to be a short-term solution at best.
Carried to its logical conclusion, this approach produces a world in which each journal is reduced to one subscription shared by all libraries. This situation is equivalent to every existing journal having migrated to single copies in on-line files accessible to all interested libraries. Some libraries will pay a license fee in advance to allow users unlimited printing access to the on-line title, while others will require users to pay for each article individually. Individual article payment requires the entire fixed-cost-plus-profit components of a publisher's revenue to be distributed over article prints only, whereas with print publications, the purchase of subscriptions of physical artifacts that included many articles not needed immediately brought with it a bonus. The library acquired and retained many articles with future potential use. Transaction-based purchasing sacrifices this bonus and increases the marginal cost of articles in the long run. In sum, the marginal cost of a journal article in the print domain was suppressed by the spread of expenditure over many items never read. In the electronic domain under transaction-based pricing, users face a higher, more direct price and therefore are more likely to forego access. While the marginal benefit to the user may be equivalent, the higher marginal cost makes it less likely that users will ask for any given article. The result may show up in diminished scholarly output or notably higher prices per article.
In the long term, should a majority of libraries take this approach, it carries a benefit for publishers. There has been no means available in the past for publishers to count the actual number of photocopies made in libraries and thus to set their price accordingly. The electronic domain could make all those hidden transactions readily apparent. As a result, publishers could effectively maintain their
corporate control of prices and do so with more accurate information with which to calculate license fees. Given this attempted solution, publishers would be able to regain and strengthen their monopoly position.
A more promising approach lies in consortial projects such as that conducted by the Associated Colleges of the South (ACS). Accompanying the Periodical Abstracts and ABI/Inform indexes of UMI that are made available on-line from the vendor or through OCLC are collections in full text of over 1,000 existing journals with backfiles. The ACS contracted an annual license for these two products (ABI/Inform and Periodical Abstracts ) for the 13 schools represented. Trinity University pays $11,000 per year for the electronic periodicals in the UMI databases, a cost that is similar to that paid by each ACS library. Coincidentally, Trinity subscribes to the print version of about 375 titles covered by these products. Trinity could cancel its subscriptions to the print counterparts of the journals provided and save $25,000. Even considering that Trinity's library will subsidize user printing for paper, toner, and so forth at an expected cost of several thousand dollars per year to service its 230 faculty and 2,500 students, it appears likely that favorable economies accrue from switching to these electronic products. Of course, these savings will be accompanied by a significant decrease in nondollar user cost to patrons, so unmet demand will emerge to offset some of the savings. Moreover, there is a substantial bonus for Trinity users inherent in this arrangement.
There are a number of titles made available in the UMI product for which subscriptions would be desirable at Trinity but have not been purchased in the past because of budget limitations. From some of these titles, users would have acquired articles through the normal channels of interlibrary loan. However, the interlibrary loan process imposes costs in the form of staff time and user labor and is sufficiently cumbersome, causing many users to avoid it for marginally relevant articles. However, if marginal articles could be easily viewed on screen as a result of electronic access, users would consider the labor cost of acquiring them to have been sufficiently reduced to encourage printing the articles from the system. Therefore, the net number of article copies delivered to users will be significantly increased simultaneous with a substantial net decrease in the cost of subscriptions delivered to libraries.
Included in this equation are savings that accrue to the consortial libraries by sharing access to electronic subscriptions. Shared access will result in a specific number of print cancellations, which will decrease publisher profit from subscriptions. Publishers offering their journals in the electronic domain will be confronted by a change in the economic infrastructure that will flatten the scholar's demand functions for their titles while simultaneously increasing the availability of articles to the direct consumers. By lowering the user's nondollar cost of accessing individual articles, demand will increase for those items. Scholars, therefore, will be more likely to print an article from an electronic library than they would be to request it through interlibrary loan. However, depending on library policy, those scholars may be confronted with a pay-per-print fee, which will affect their de-
mand function. If publishers raise the price to scholars for an article, they are more likely to lose a sale. Users will be more cautious with their own money than with a library's. That is, in the electronic domain, where scholars may be paying directly for their consumption, demand functions will be more elastic. This elasticity will occur to some extent even when users do not pay for articles but merely note the article price paid by their subsidizing library. Therefore, price discrimination may be more difficult to apply and monopoly power will be temporarily lost.
The loss might be temporary because this strategy is functionally the same as merging several libraries into one large library and providing transaction-based access versus ownership. This super library could ultimately face price discrimination similar to that currently existing in the print domain. This discrimination will lead, in turn, to the same kind of inflation that has been suffered for many years.
Preliminary Analysis of Financial Impact
This paper reports on the early stages of a three-year study funded by The Andrew W. Mellon Foundation. The study includes analysis directed at testing the viability of consortial access versus ownership for cost savings as well as the potential long-term solution that would derive from emergence of a new core of electronic titles. A complete financial analysis of the impact of consortial, electronic access to a core collection of general purpose periodicals and an econometric analysis of over 2,000 titles on the impact of electronic availability on pricing policy will issue from the study conducted under this grant. Some interesting issues have emerged with preliminary results of the study.
The Palladian Alliance is a project of the Associated Colleges of the South funded by The Andrew W. Mellon Foundation. This consortium of 13 liberal arts colleges-not just libraries-has a full-time staff and organizational structure. The Palladian Alliance came about as result of discussions among the library directors who were concerned about the problem described in this paper. As the project emerged, it combined the goals of several entities, which are shown in Table 14.1 along with the specific objectives of the project.
The Andrew W. Mellon Foundation awarded a grant of $1.2 million in December 1995 to the ACS. During the first half of 1996, the librarians upgraded hardware, selected a vendor to provide a core collection of electronic full-text titles, and conducted appropriate training sessions. Public and Ariel workstations were installed in libraries by July 1996 and necessary improvements were made to the campus networks to provide access for using World Wide Web technology. Training workshops were developed under contract with Amigos and SOLINET on technical aspects and were conducted in May 1996. During that same time, an analysis was conducted to isolate an appropriate full-text vendor.
After comparison of the merged print subscription list of all institutions with three products-IAC's InfoTrac, EBSCO's EBSCOHOST, and UMI's Periodical Abstracts and ABI/Inform-the project team selected UMI with access through OCLC. A contract with OCLC was signed in June for July 1, 1996, start-up of FirstSearch for the nine core databases: WorldCat, FastDoc, ERIC, Medline, GPO Catalog, ArticleFirst, PapersFirst, ContentsFirst, and ProceedingsFirst; and for UMI's two core indexes, Periodical Abstracts and ABI/Inform, along with their associated full-text databases. This arrangement for the UMI products provides a general core collection with indexing for 2,600 titles, of which approximately 1,000 are full-text titles.
The UMI via OCLC FirstSearch subscription was chosen because it offered several advantages including the potential for a reliable, proprietary backup to the Internet, additional valuable databases at little cost, and easy means to add other databases. The UMI databases offered the best combination of cost and match with existing holdings. UMI also offered the future potential of full-image as well as ASCII text. After the first academic year, the project switched to access via ProQuest Direct in order to provide full image when available.
Students have had access to the core electronic titles since the fall semester in 1996. As experience builds, it is apparent that the libraries do have some opportunity to cancel print subscriptions with financial advantages. The potential costs, savings, and added value are revealed in Tables 14.2 through 14.4. Specific financial impact on the institutions during the first year is shown in Tables 14.5 and 14.6. It should be noted that the financial impact is based on preliminary data that has been extremely difficult to gather. Publisher and vendor invoices vary considerably
between schools on both descriptive information and prices. Therefore, these results will be updated continually throughout the project.
At the outset, the project benefits the libraries in a significant way because of the power of consortial purchasing. Only a few of the larger libraries might be able to afford to purchase access to both full-text databases were they constrained to individual purchases. Added together, individual subscriptions to ABI/Inform and Periodical Abstracts accompanied with the full text would collectively cost the 13 libraries $413,590 for 1997/98. By arranging consortial purchase, the total cost to the ACS is $129,645 for this second year. Because the libraries can then afford their share of the collective purchase, the vendor benefits from added sales otherwise not available and the libraries add numerous articles to the resources provided their students. More detailed accounting of the benefits are determined in the accompanying tables.
These tables are based on actual financial information for the consortium. Table 14.2 summarizes the project costs. These calculations will be corrected to reflect revised enrollment figures immediately prior to renewal for the third year. The project was designed to use grant funds exclusively the first year, then gradually shift to full support on the library accounts by the fourth year.
As the project started, the ACS libraries collectively subscribed through EBSCO, FAXON, and Readmore to approximately 14,600 subscriptions as shown in Table 14.3. Of these subscriptions, 6,117 are unique titles; the rest are duplicates of these unique titles. Were the ACS libraries collectively merged into one collection, it would therefore be possible to cancel more than 8,000 duplications and save over $1,000,000. Since this merger was not possible, the libraries contracted for electronic access to nearly 1,000 full-text titles from UMI. Over 600 of these UMI titles match the print subscriptions collectively held by the libraries. As Table 14.3 indicates, canceling all but one subscription to the print counterparts of the UMI titles could save the libraries about $137,000 for calendar year 1996. Canceling all the print counterparts to the electronic versions would save nearly $185,000, which is about equal to the licensing costs for the first year per Table 14.2.
For calendar year 1996, the libraries canceled very few titles. In part, this came about because of reluctance to depend upon an untested product. There was no existing evidence that UMI (or any other aggregator) could maintain a consistent list of offerings. To date, cancellations for 1997 have also been fewer than expected at the outset. Furthermore, the project has begun to show that products such as ProQuest Direct come closer to offering a large pool of journal articles than they do to offering full electronic counterparts to print subscriptions. However, these products do provide significant benefits to the libraries.
The project adds considerable value to the institutional resources. The schools had not previously subscribed to many of the titles available through UMI. As an
illustration, Table 14.4 lists the number of print subscriptions carried by each institution and indicates how many of those are available in the UMI databases electronically. The fourth column reveals the potential savings available to each school were the print counterparts of all these electronic journals to be canceled. The column labeled Added E-Titles shows the number of new journals made available to each institution through the grant. The final column indicates the total titles now available at each institution as a result of the consortial arrangement. Comparison of the final column with the first reveals that the electronic project nearly doubles the journal resources available to students.
Table 14.5 details the preliminary financial impact on the ACS institutions for the first and second calendar year of the project. While the opening premise of
the project suggests that canceling print subscriptions would pay for consortial access to UMI's aggregated collections, actual practice shows otherwise. The data is still being collected in the form of invoices, but preliminary summaries of cancellations show meager savings. Total savings across the 13 campuses is little more than $50,000 per year. This savings is not enough to pay for the first two years of the project, which is over $350,000. However, the added value to the combined collections exceeds $2,000,000 per year as measured by the cost of print counter-parts to the UMI titles. Furthermore, additional action by some institutions, as shown in Table 14.6, reveals better outcomes.
Comparing the savings shown in Table 14.6 with the subsidized cost reveals that in the cases of Trinity and Millsaps, even without Mellon support, the consortial provision of the OCLC/UMI databases could be paid for by canceling indexes along with a few print subscriptions. In Trinity's case, two indexes previously purchased as CD-ROMs or direct links to another on-line source were canceled for savings of over $5,000 in the first year. Trinity canceled a CD-ROM subscription to a site license of ABI/Inform, which saved expenditures totaling over $6,000 per year, and an on-line general purpose index that previously cost over $12,000. The Trinity share to the Palladian Alliance project would have been just over $13,000 per year for the first three years. Similarly, Millsaps canceled one index and 74 periodical titles that overlapped the UMI content for net first-year savings of nearly $9,000. On this basis, the project more than pays for itself.
Added interesting outcomes of the project at this point include a couple of new
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pieces of important information. First, canceling individual subscriptions to indexes provides a viable means for consortial pricing to relieve campus budgets, at least in the short run. Were it necessary for Trinity to pay its full share of the cost, canceling indexes alone provided sufficient savings to pay for the project. Just considering trade-offs with indexes alone, Trinity's net savings over the project life span total nearly $18,000.
Second, on the down side, canceling journals and replacing them with an aggregator's collection of electronic subscriptions may not be very reliable. It is apparent that the aggregators suffer from the vagaries of publishers. In just the first few months of the project, UMI dropped and added a number of titles in both full-text databases. This readjustment means that instead of full runs of each title, the databases often contain only partial runs. Furthermore, in some cases the publisher provides only significant articles, not the full journal. Therefore, the substitution of UMI provides the libraries with essentially a collection of articles, not a collection of electronic subscription substitutes. This result diminishes reliability and discourages libraries from being able to secure really significant cost savings.
It should be noted however, that several of the libraries independently subscribed to the electronic access to Johns Hopkins Project MUSE. In contrast to an aggregated collection, this project provides full-image access to every page of the print counterparts and guarantees access indefinitely to any year of the subscription once it's paid for. This guarantee means that reliability of the product is substantially improved, and it provides reasonable incentives to the libraries to substitute access for
collecting. While it may be acceptable to substitute access to a large file of general purpose articles for undergraduate students, Project MUSE promises better results than the initial project for scholarly journal collections. The final report of this project will include information on the impact of the Project MUSE approach as well as on the original concept.
Third, the impact of on-line full-text content may or may not have an impact on interlibrary loan activity. Table 14.7 summarizes the searching and article delivery statistics for the first six months of the project compared to the total interlibrary borrowing as well as nonreturn photocopies ordered through the campus interlibrary loan offices. The change in interlibrary loan statistics for the first six months of the project compared to the previous year show that in some cases interlibrary borrowing increased and in other cases it decreased. Several variables besides the availability of full-text seem to affect use of interlibrary loan services. For instance, some of the institutions had full-text databases available before the project started. Some made more successful efforts to promote the project services than others. It seems likely that improved access to citations from on-line indexes made users more aware of items that could be borrowed. That effect probably offset an expected decrease in interlibrary loans that the availability of full text makes predictable. Regardless, statistics on this issue yield inconclusive results early in the project.
Fourth, it is curious that secondary journals in many fields are published by commercial firms rather than by professional organizations and that their publications are sold at higher prices. Libraries typically pay more for Haworth publications than they do for ALA publications. Haworth sells largely to libraries responding not to demand for content but for publication outlets. Libraries are willing to pay for the Haworth publications. This fact helps explain why secondary titles cost more than primary ones. Demand may be more for exposure of the contributor than it is for reading of content by subscribers. The econometric analysis included in the project may confirm this unintended hypothesis.
At this point, a meaningful econometric analysis is many months away. A model based on Lerner's definition of monopoly power will be used to examine pricing as journals shift into the electronic sphere. The model calls for regressing the price of individual titles on a variety of independent variables such as number of pages, advertising content, circulation, and publisher type, and for including a dummy variable for whether a journal is available electronically. Data is being collected on over 2,000 of the subscriptions held by Trinity for the calendar years 1995 through 1997. Difficulties with financial data coupled with the time-consuming nature of data gathering have delayed progress on the econometric analysis.
It would be desirable to conduct an analysis on time series data to observe the
consequences in journal price changes as a shift is made to electronic products. This analysis would provide a forecast of how publishers react. Lacking the opportunity at the outset to examine prices over time, a straightforward model applying ordinary least squares (OLS) regression on cross section data, similar to the analyses reported by others, will form the basis of the analysis. Earlier models have
typically regressed price on a number of variables to distinguish the statistical relevance of publisher type in determining price. By modifying the earlier models, this analysis seeks to determine whether monopoly power may be eroded in the electronic market. The methodology applied uses two specifications for an ordinary least squares regression model. The first regresses price on the characteristics of a set of journal titles held by the ACS libraries. This data set is considerably larger than those utilized in previous studies. Therefore, we propose to confirm the earlier works that concentrate on economic journals across a larger set of disciplines. This specification includes the variables established earlier: frequency of publication, circulation, pages per year, and several dummy variables to control for whether the journals contain advertising and to control for country of publication. Four dummy variables are included for type of publisher with the residual being commercial. A second specification regressing the difference in price for libraries compared to individuals will be regressed on the same set of variables with an additional dummy added to show whether given journals are available electronically.
The ACS libraries collectively subscribe to approximately 14,000 title. Where they duplicate, an electronic set has been substituted for shared access. We anticipate that at the margin, the impact on publishers would be minimal if ACS canceled subscriptions to the print counterparts of this set. However, the national availability of the electronic versions will precipitate cancellations among many institutions in favor of electronic access. Prices will be adjusted accordingly. Since most publishers will offer some products in print only and others within the described electronic set, we expect the prices of the electronic version will reflect an erosion of monopoly power. Thus the cross section data will capture the effect of electronic availability on monopoly power.
Since the data set is comprised of several thousand periodical titles representing general and more popular items, several concerns experienced by other investigators will be mitigated. The only study found in the literature so far that examines publishers from the standpoint of the exercise of monopoly power investigated price discrimination. This project intends to extend that analysis in two ways. First, we will use a much broader database, since most of the previous work was completed on limited data sets of less than 100 titles narrowly focused in a single academic discipline. Second, we will extend the analysis by assuming the existence of price discrimination given the difference in price to individuals versus libraries for most scholarly journals. With controls in the model for previous discoveries regarding price discrimination, we will attempt to test the null hypothesis that monopoly power will not decrease in the electronic domain.
In the data set available, we were unable to distinguish the specific price of each journal for the electronic replacement, because UMI priced the entire set for a flat fee. This pricing scheme may reflect an attempt by publishers to capture revenue lost to interlibrary lending. Alternatively, it may reflect publisher expectations that
article demand will increase when user nondollar costs decrease. Thus, monopoly power will be reflected back on to the subscription price of print versions. As a result we will use the price of print copies as a proxy for the specific electronic price of each title.
An alternative result could emerge. In monopolistic competition, anything that differentiates a product may increase its monopoly power. For example, firms selling products expend tremendous amounts of money on advertising to create the impression that their product is qualitatively distinguishable from others. Analogous electronic availability of specific titles may create an impression of superior quality.
The general model of the first specification is written:
where y equals the library price (LPRICE) for journal j = 1, 2, 3, ... n. The definitions of independent variables appear in Table 14.8 along with the expected signs on and calculations of the parameters b1 through b17 to be estimated by traditional single regression techniques.
The general model of the second specification is written:
where y equals two different forms of monopoly power (MPOWER1; MPOWER2) defined as measure i = 1 and 2 for journal j = 1, 2, 3, ... n. Again, the definitions of independent variables appear in Table 14.8 along with the expected signs on and calculations of the parameters b1 through b17 to be estimated by traditional single regression techniques.
The variables listed in Table 14.8 are suggested at this point based on previous studies that have demonstrated that they are appropriate. Testing with the regression model is required in order to determine those variables ultimately useful to this study. Additional variables will be introduced should experiments suggest them. A very brief rationale for the expected sign and the importance of the variables is in order. If the difference in price between what publishers charge libraries versus individuals represents price discrimination, then a variable for the individual price (IPRICE) will be a significant predictor of price to institutions (LPRICE). Higher individual prices will shift users toward the library, thus raising demand for library subscriptions, which will pull institutional prices higher. The sign on this variable is expected to be positive.
One group of variables deals with the issue of price discrimination based on
the monopoly power that can be exercised by foreign publishers. Publishers in Great Britain (GBRITAIN), western Europe (EUROPE), and other countries outside the United States (OTHER) may have enough market power to influence price. Therefore these variables will carry a positive sign if a sizable market influence is exerted. Some of these publishers will also be concerned with currency exchange risks (RISK), which they will adjust for in prices. However, since they offer discounts through vendors for libraries who prepay subscriptions, this variable will carry a negative sign if the price to individuals captures most of the financial burden of risk adjustment.
It is expected that commercial publishers discriminate by price more than their nonprofit counterparts do. Therefore, in comparison to the commercial residual, associations (ASSOC), government agencies (GOVERN), university presses (UNIVPR) and foundations (FOUNDTN) will capture generally lower prices of these nonprofit publishers. Negative signs are expected on these.
All the publishers will experience production costs, which can be exposed through variables that control for frequency (FREQ), total pages printed per year (PAGES), peer review (PEERREV), submission fees (SUBMISSFEE), processing/communication expenses and copyright clearance registration expenses (CCCREG), and the presence of graphics, maps, and illustrations (ILLUS), all of which will positively affect price to the extent they are passed along through price discrimination. Circulation (CIRO) will capture the effects of economies of scale, which those publications that are distributed in larger quantities will experience. Thus this variable is expected to be negative. Similarly, the inclusion of advertising (ADV) will provide additional revenue to that of sales, so this variable is expected to be negative since journals that include ads will have less incentive to extract revenue through sales. New entries into the publishing arena are expected to experience costs for advertising to increase awareness of their products, which will be partially passed on to consumers. Therefore, age (AGE), which is the difference between the current date and the date the journal started, will be a negative predictor of price and monopoly power.
Previous studies have developed measures of quality based on rankings of publications compared to each other within a given discipline. Most of these comparisons work from information available from the Institute for Scientific Information. Data acquired from this source that shows the impact factor, immediacy index, half-life, total cites, and cites per year will be summarized in one variable to capture quality (QUALITY) of journals, which is expected to be positive with regard to both price and monopoly power.
The prices of journals across disciplines may be driven by different factors. In general, prices are higher in the sciences and technical areas and lower in the humanities. This discrepancy is understandable when we consider the market for science versus humanities. As stated earlier, there is essentially no market for scholarly publications in the humanities outside of academe, whereas scientific
publications are used heavily in corporate research by pharmaceutical firms and other industries highly dependent on research. As a result, two additional dummies are included in the model to segment the specification along discipline lines. HUMAN and SOCSCI will control for differences in price among the humanities and social sciences as compared to the residual category of science. These variables are expected to be negative and strong predictors of price.
Finally, a dummy variable is included to determine whether availability of each journal electronically (ELECTRONIC) has a positive impact on ability to discriminate by price. Since we have predicted that monopoly power will erode in the electronic arena, ELECTRONIC should be statistically significant and a negative predictor of monopoly power. However, to the extent that availability of a journal electronically distinguishes it from print counterparts, there is some expectation that this variable could be positive. This would show additional price discrimination by publishers who are able to capture lost revenue in the electronic environment.
The data set will be assembled by enhancing the data on subscriptions gathered during the planning project. Most of the additional data set elements including prices will come from examination of the journals and invoices received by the libraries. Impact and related factors will be acquired from the Institute for Scientific Information. The number of subscriptions supplied in print by two major journal vendors, FAXON and EBSCO, will be used as a proxy for circulation. An alternative measure of circulation will be compiled from a serials bibliography. The rest of the variables were obtained by examination of the print subscriptions retained by the libraries or from a serials bibliography.
There may be other ways to attack the problem of price inflation of scholarly periodicals. Some hope arises from the production cost differences between print and electronic periodicals. The marginal cost of each added print copy diminishes steadily from the second to the n th copy, whereas for electronic publications, the marginal cost of the second and subsequent copies is approximately zero. Although distribution is not quite zero for each additional copy, since computer resources can be strained by volume of access, the marginal cost is so close to zero that technical solutions to the problem of unauthorized redistribution for free of pirated copies might provide an incentive for publishers in the electronic domain to distribute equitably the cost of the first copy across all consumers. If the total cost of production of the electronic publications is lower than it would be for printed publication, some publishers may share the savings with consumers. However, there is no certainty that they will, because profit maximizers will continue to be profit maximizers. Therefore, it is appropriate to look for a decoupled solution lying in the hands of consumers.
In the meantime, the outcomes of this research project will include a test of the
benefits of consortial access versus ownership. In addition, earlier work on price discrimination will be extended with this cross-discipline study to determine whether electronic telecommunications offers hope of relief from monopoly power of publishers.
The author wishes to acknowledge with thanks the financial support of The Andrew W. Mellon Foundation and the participation of several colleagues from libraries of the Associated Colleges of the South. Thanks also to my associate Tanya Pinedo for data gathering and analysis. All errors remain the responsibility of the author.