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Price Discrimination

The recent market of academic journals faced various negative issues. The main disadvantage of this market is that most of the publishing companies are focused on profits and create discriminative price strategy. Oligopolistic firms made the market imperfect due to the sophisticated price strategies. There is an opinion that, as the main buyers of academic journals are University libraries and they are free to subscribe to single journals or to collections of journals or to no journals at all, regulation of this market is unlikely to be either effective or beneficial. However, other opinion concentrates on the issue that this market is supposed to be regulated. In this essay, an attempt to bring examples that will propose the necessary solution will be made.

Academic journal publishing has increased tremendously in the past two decades. There was a rapid rising of ownership concentration, quantity of journals and prices for them (Edlin & Rubinfeld, 2004). Also, it should be noted that a new tendency evolved very rapidly - online distribution of journals. According to the statistics, 70 % of the incomes from selling of academic journals in the spheres of science, technique and medicine went to profit publishers while 18 % -to non-profit ones and the rest 12% - to aggregators (Edlin & Rubinfeld, 2004). The increasing of the prices on the market of the academic journals can also be explained by means of different acquisitions and merging which were provided by the top companies, for example, such companies as Candover and Cinven purchased Kluwer Academic Publishers and Bertelsmann-Springer. As a result, these two publishing companies publish over 1300 journals. If to detail the situation that took place in the publishing industry one should remember the strategy of the major publishing companies called Big Deal (Edlin & Rubinfeld, 2004). The initiative was developed to organise the monopoly of some major companies on the market. In general, this strategy was dedicated to purchasing of the libraries bundles packages. These bundles are made of printed and non-printed journals.

Certainly, now it can be seen that sources of academic literature have changed significantly. This means that sources of information changed mainly from printed versions to electronic ones. Instead of purchasing printed literature in the past, now libraries are purchasing site licenses with electronic literature. This situation is worse for the scholars than if they had individual subscriptions only. The case is that libraries usually purchase academic journals from commercial publishers and the price for this literature as it was mentioned above is much higher than for non-profit journals. As a result, libraries waste their expenses, and, in many cases, the price does not reflect on quality of the literature. The issue is that libraries work in their own interests, but to exclude the situation in which the subscription price is much higher than the publisher's one, libraries should agree to purchase a journal site license only when its price is close to the cost of the subscription (Bergstrom and Bergstrom, 2004).

In the past, academic literature was sold to libraries on the stand-alone basis, and hence, the journal was able to establish its own subscription price. This strategy has two main benefits. Firstly, the journal is able to control its own revenues, and consequently, has a possibility for further development. The second positive aspect of this policy is that there is no problem with distribution of the publisher's profits - the journal's contribution to overall revenue is explicit. This means that the journal is independent of the publisher's cooperation with libraries (Armstrong, 2010).

Another aspect, which can have an influence on the market prices of academic journals, is inelastic demand of libraries. The explanation of this situation can be done by means of the following: libraries show what literature they need to purchase, but they do not know all information about the demands of the faculties. Apart from the libraries, faculties do not want to share information about their budget limits and make difficult decisions concerning the allocation of money among the journals. These policy differences lead to inelastic demand of libraries. Of course, if the prices for the academic journals are too high libraries have to substitute for monographs or books (McCabe, Nevo & Rubinfeld, 2005).

The issue is that publishers get more profit than non-profitable journals, and according to previous examples, it is possible to conclude that it is more beneficial to have a stand-alone basis of sales for some journals. University libraries are the main purchaser of the academic journal market, and the purchaser is free to subscribe to single journals or to collections of journals or to no journals at all. This means that regulation of such market can be unnecessary, and it is possible to come back to stand-alone basis of sales. Another major issue is that university libraries spend money on non-profitable journals as they make collective sales. Because of technological advances, today almost all literature is digital, and according to Armstrong, the electronic revolution means that it is essentially costless for a publisher to give one more library access to one of its journals. As a result, is it socially e%uFB03cient for all libraries to have electronic access to all journals (Armstrong, 2010). However, the university libraries pay more money, and in some cases get non-profitable and not necessary journals of low quality. This is the example of price discrimination, where libraries pay more, but the publishing firms get more profit through this price strategy and sales model.

How should the market be regulated? First, Theodore Bergstrom (2001) in his work Free Labor for Costly Journals? (2001) argues about the big differences in prices for journals that are provided by markets and special societies. The issue is that there is no big difference in quality between market journals and university press ones. It is worth saying that top 6 most cited economical journals are non-profitable, but their library subscription prices are about 160 dollars per year. The average price per page for profitable journals is 6 times higher than for non-profitable ones, and the average price per citation for profitable journals is about 16 times higher than for non-profitable ones. Bergstrom (2001) argues that one of the best ways to solve this problem is to expand non-profitable journals. Consequently, it can be an effective way to make lower prices for the owners of profitable journals (Bergstrom 2001). It is not clear, why profitable journals are still buyable by people in such big quantities. However, the most famous economic journals are non- profitable. Secondly, a support of new electronic journals should be provided. It is a prospective idea as some of them are developing very quickly, and they should provide interesting ideas and different researches in the economic sphere. One of the most promising ones is Economic Bulletin. It provides short economic stories in all fields of the economy and different research ideas. Unfortunately, this journal is rather expensive, so to increase the attractiveness for users the owners of the journal should make an online version of this journal with no charge for everyone. The Economic Bulletin is going to maintain itself by providing a $20 submission fee for the authors.

Additionally, it is vital to examine the influence of the monopolies on the market. It can be exemplified by such example: suppose that there are some companies that produce CD's with electronic databases, for instance. If all of CD's have similar characteristics, customers will buy these digital sources of information from the cheapest company. However, it can happen that total costs for production of a CD can be higher than its market price. This can lead to the situation in which only one producer will survive. Certainly, this producer can be considered as a monopolist on the market; and consequently, he will be able to increase prices for its goods (Varian, 1995).

Another example can also show this price discrimination. Let the cost of the production of the first copy of the book be $7 while the second copy of the book will be with no incremental costs. One can suppose that we have 2 customers: one of them wants to pay $5 for the book while another - only $3. It is clear that the total benefits will be 5+3=$8 exceeds total costs, 7, so it is socially desirable to produce such a book. Certainly, it is worth saying that the producer is not able to recover the costs of this book by providing any price: if the producer establishes a $5 price for the book he or she will have $5 income, but if he or she lowers the price of the book to $3 he or she will have $6 income. So, if the owner of the journal wants to cover the development costs of the book it is necessary to establish different prices for different users.

To conclude everything mentioned above, it is worth saying that libraries should choose only one from the strategies: to make subscriptions or not to make subscriptions to academic journals. In general, if the libraries make subscriptions to profitable journals, the effectiveness of this process is not good enough because of the owners of the journals. These journals do not differ much from the non-profit ones, so it often can be a situation when libraries spend a lot of useless money.

Bibliography

  1. Armstrong, M 2010, Collection Sales: Good or Bad for Journals?, Economic Inquiry, 48, pp. 163- 176.
  2. Bergstrom, CT and Bergstrom, TC 2004, The costs and benefits of library site licenses to academic journals, 101 proceedings of the National Academy of Sciences, pp. 897-902.
  3. Bergstrom, TC 2001, Free Labor for Costly Journals?, Journal of Economic Perspectives, vol.15, no.3, pp.183-198, viewed 10 November 2013 click here.
  4. Edlin, AS & Rubinfeld, DL 2004, Exclusion or Efficient Pricing? Big Deal
  5. Bundling of Academic Journals, Antitrust Law Journal, vol. 72, no.1, pp. 119-157, viewed 10 November 2013.
  6. McCabe, MJ, Nevo, A & Rubinfeld, DL 2005, Academic Journal Pricing and the Demand of Libraries, American Economic Review, vol.95, no.2, pp. 447-452, viewed 10 November 2013
  7. Varian, H 1995, Pricing information goods, Department of Economics, University of Michigan, viewed 10 November 2013 click here

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