[Notes taken during a talk today, Ted Bergstrom: “Some Economics of Saying Nix To Big Deals and the Terrible Fix”. My own thoughts are interspersed throughout; please don’t automatically ascribe everything to Dr. Bergstrom.

Check out his stuff at Ted Bergstrom’s home page.]

Journals are a weird market – libraries buy as agents of professors, using someone else’s money, in deals of enormous complexity and uncertain value from companies that basically have a monopoly.

Similar to a few other situations: doctors prescribe drugs for patients using insurance money. Professors assign textbooks to students whose parents (in general) buy them. In all these cases, the supplier is (or is nearly) a monopoly operation.

Median price per article of for-profit journals is 3-4 times the median prices for non-profit journals. When you look at price per citation it gets even worse (because the “best” – or at least most cited – journals tend to be non-profit).

Marginal cost of supplying print journals is about a penny a page. The marginal cost of supplying electronic access is nearly zero, of course and shelf space and multiple-copies become a thing of the past.

SO…enter the Big Deal.

Academic press and then Elsevier figured out how to price-discriminate: calculate each library’s current expenditure on paper journals, multiply by 1+x (for x about 0.15) and provide access to all their journals electronically, plus whatever paper you used to buy. Elsevier had a 5-year contract, during which they promise not to increase the price more than 7% per year.

This is a great deal for Elsevier, because they know what a library is already paying and the marginal cost of providing electronic access is essentially zero to them. Huge success – lots of libraries jumped on board, and then so did the other publishers.

Bundling deters entry into the market

Libraries who bought the first Big Deal had their payments increase 7%/year (note that about half of UC’s serials budget goes to Elsevier), but their own budget increases about 3.5%/year. So, they’re in constant cancellation mode, but you can’t cancel only a portion of the electronic access, so it’s exempt. Small-time journal publishers are the only thing left to cut.

We have to learn to say “no”

Plus…it’s an incredibly popular product. Faculty love online access, as do students. So negotiating a new contract is tough to do, because libraries (as always) are unwilling to walk away.

The theory of bargaining suggests the the library needs to know what will happen if the Big Deal bargain breaks down – what happens if we walk?

Problem: we (the libraries) don’t know what the deal is worth to us OR what it’s worth to the publisher. Valuation of the big bundles is a ridiculously complex problem.

What happens if we cut if off?

  • Library owns access rights to back issues of journals previously subscribd to.
  • Pay-per-view access required only for recent volumes

So…we need to calculate number of pay-per-view access, which will obviously increase as time goes on (and more stuff falls under this model) and would go down if we were to change consumers (faculty and students) some percentage of the cost.

Big problem: we can’t make that calculation. We have no good way of knowing what percentage of article downloads are for current journals, and the publishers don’t release that data.

Even if we had the data, though, the likely outcome after a certain amount of time, as more stuff falls into the pay-per-view window, is a new Big Deal.

What about the Big Deals themselves?

Hard to know – because there are NDA sprinkled around like snow in Minnesota. But it turns out that these deals are FOIA-able! Yea! Elsevier actually tried to sue Ted’s group in the state of Washington, but Paul Courant and others helped to win the day, and they haven’t been sued since.

Publishes want to give the impression that the renewals of the Big Deals are basically formulaic, but in real life there are significant differences from institution to institution.

What’s the “Economic Solution”

Llet users pay for what they use. If users paid their own money (about $35/article at the for-profit institutions), users will modify their own behavior AND authors will stop submitting to the expensive-to-access journals because they want their stuff to be read.

How much money are they making?

Reported profits of Elsevier and Springer are about 30% of sales. That’s a huge margin in the regular world, but their costs are tiny? Where does it all go?

Basically, it goes to lobbyists, lawers, and executive salaries.

The Optical Society of America (physics, not eyesight) is a non-profit organization that publishes journals at about 1/3 the cost per page of Elsevier, but makes 40% profit on sales. They, of course, plow it back into physics journals, being a non-profit and all.

What’s the economic model of a journal?

  • Publishers have fixed costs (editing, harassing referees, typesetting, technology, etc.). I (Bill) think of this as the “First reader” cost – the cost to get one reader to be able to read it.
  • The marginal cost of adding more users is essentially zero.
  • The “efficient” option is to either allow user access at zero cost, with various institutions subsidizing the fixed costs, or just don’t publish the journal.

What can a single library do?

Not much. Faculty will scream, and one library acting alone will have essentially no effect on anything.

An interim strategy

Drop Big Deals to overpriced journals. Maintain subscription and free access to journals priced near the average cost, and subsidize (at less than 100%) pay-per-view access to the overpriced journals

How big are the differences in what people pay?

Just as an aside, almost, he tells us that while UMich and Illinois pay Elsevier about $2.25M for the “Freedom Collection”, Wisconsin pays about $1.2M for the exact same collection. Whoops!

He’s getting contract via FOIA and analyzing the differences. I imagine there’ll be publications forthcoming.