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    11.5 Policy Implications and Future Directions

    Market Failure?

    Efficient pricing is not sustainable in the declining average cost environment of academic publishing. This begs the question of how the performance of commercial publishers compares to a second-best break-even standard. Our analysis suggests that prices far exceed marginal costs, but do they exceed average costs? One way to assess this question is to examine the pricing of comparable non-profit titles; presumably non-profit publishers set prices closer to if not equal to average costs. If the latter prove to be cheaper, then scholars have a real alternative for disseminating scholarly information in a more efficient fashion.

    Though a comprehensive analysis of non-profit journals is beyond the scope of the present paper it is useful to report some initial qualitative results.[19] In Table 11.4, I calculate average prices and citation rates for both commercial and non-profit ISI-ranked biomedical journals.

    Table 11.4: 1998 Statistics for ISI-Ranked Biomedical Titles, By Date of Initial Publication
    1978-1987 1938-1947
    Non-Profit Commercial Non-Profit Commercial
    Variable N Mean N Mean N Mean N Mean
    PRICE($) 27 287 343 736 17 379 28 838
    CITES 27 10304 343 2159 17 8946 28 7913
    1968-1977 1928-1937
    Non-Profit Commercial Non-Profit Commercial
    Variable N Mean N Mean N Mean N Mean
    PRICE($) 26 306 221 919 4 139 19 591
    CITES 26 13907 221 2720 4 3547 19 3695
    1958-1967 1918-1927
    Non-Profit Commercial Non-Profit Commercial
    Variable N Mean N Mean N Mean N Mean
    PRICE($) 17 446 101 1316 9 294 22 483
    CITES 17 14163 101 5067 9 6402 22 2949
    1948-1957 Before 1918
    Non-Profit Commercial Non-Profit Commercial
    Variable N Mean N Mean N Mean N Mean
    PRICE($) 11 289 58 625 16 292 69 702
    CITES 11 13445 58 3774 16 12593 69 3365

    Titles are aggregated according to the decade of initial publication, going backward from 1987.[20] The discrepancy in average prices and citations for the two groups is striking. For example, if we compare titles that originated at similar points in time, we find that the average non-profit subscription price is between fifty to seventy-five percent less than the commercial rates for titles of similar vintage. At the same time average citation rates for the non-profit journals greatly exceed those of the commercial publishers' in most instances, sometimes by a factor of five. Among commercial journals, prices and citations are positively correlated. Thus, the substantially lower prices of comparable non-profit titles suggests that commercial publishers are setting prices well in excess of average costs.[21] Despite this apparent superiority,[22] the population of ranked non-profit titles is far smaller than that of the commercial journals, 148 versus 1032. Has the lucrative journals market induced too much entry or have the non-profits been too slow to exploit emerging research areas? Although this question deserves further attention it seems clear that the two distinct publishing models exist, each successful in their own way.

    Antitrust Paradigms

    When the proposed 1998 merger between Reed Elsevier and Wolters Kluwer collapsed, opposition from antitrust authorities in Europe and the U.S. was cited as a primary cause. Although no formal complaints were filed by agencies on either side of the Atlantic, regulators had sent a variety of signals indicating their serious concerns. Negotiations with the European Union had progressed the farthest and it appeared that the proposed deal would proceed only if the parties agreed to significant divestitures. It was widely reported at the time that the EU's preferred set of divestitures upset the financial logic of the merger and resulted in its demise.

    What is interesting here is that the EU's main focus was not on academic journals, but rather legal publishing (in Europe), and that its theory of anti-competitive harm was based on a user-based approach to publishing mergers: excessive overlap in content (and therefore similar to the DOJ's approach to the 1996 merger of legal publishers Thomson and West). The U.S. focus was far different, in part because European legal publishing was not germane and because the model of harm relied upon was novel.

    Though one can only speculate on how a U.S. antitrust case might have proceeded, it is clear that the combined Reed-Elsevier/Wolters-Kluwer entity would have controlled large journal portfolios in a number of broad fields, including biomedicine. Assuming that these broad fields constituted antitrust markets, some of these portfolios would have crossed the U.S. government's concentration threshold (based on the Antitrust Guidelines) with shares in excess of 30-35%. Based on the results discussed here, such a merger may have resulted in substantial price increases over time. If the U.S. had filed a complaint and had been successful with this market definition, an important legal precedent would have been set, one that would have made it easier to employ a portfolio theory in mergers involving combined market shares less than the threshold, e.g. the subsequent merger of Wolters-Kluwer and Waverly, and/or a large firm buying a relatively small portfolio of journals. The recent reluctance of the Antitrust Division to oppose several mergers in the publishing industry can be partially attributed to insufficient market shares. However, since many future deals are likely to be relatively small in scope, opposition to journal mergers will need to adopt novel approaches in the definition of both markets and concentration thresholds.[23]

    A Digital Future

    Scholarly journals render at least three services: research communication, archiving, and quality certification. Digital technology offers the potential to transform the first two by providing instantaneous access to current and past research. With modest investments in computer hardware and software, global scientific communities can dramatically lower the costs of exchanging information.[24] Though these innovations might seem to threaten the future of the traditional journal, the latter's role as a quality filter may be sufficient to preserve its existence, albeit in modified form. Although it is possible to conceive of new mechanisms for evaluating journal quality, e.g. measuring the number of hits generated by a journal website, it seems likely that the existing expert-based system for assessing new research will survive.[25]

    Commercial publishers have begun to exploit these new opportunities by bundling their individual journal titles and providing libraries with electronic access to article databases.[26] In doing so, the economics of commercial publishing may change in (subtle) ways. Portfolio size will still matter, but the number of journals may matter less than the total article population. Digital technology will make it feasible to control, monitor and price access in new and myriad ways, suggesting that sophisticated price discrimination schemes could be observed someday. The prospect of bundling and price discrimination, of course, will inevitably raises antitrust issues. A few, large portfolios might reduce transactions costs for libraries yet have the potential for influencing new entry as well as pricing.[27]