Econometric Analysis

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.^[26]

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.^[27] 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:

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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:

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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.