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    12.2 The Noncompetitive STM Marketplace

    Publisher profits begin to reveal the nature of the scholarly publishing enterprise, particularly that of journals publishing in science, technology, and medicine, and increasingly in business and economics. Some of the world's largest journal publishers are companies owned by Wolters Kluwer and Reed Elsevier. Data from these companies compared with that from the periodicals publishing industry as a whole show margins 2-4 times as high and return on equity almost twice as high (Wyly, 1998). In his analysis of these companies' financial data, Wyly notes that in conjunction with other evidence, "a high return on equity is at least a potential indicator that equity holders are benefiting from investing in activities not subject to competitive forces" (p. 9).

    Other evidence consistent with high margins is noted by McCabe in Chapter 11 in his section on Data: Descriptive Statistics. McCabe's data show that while the prices of 1000 biomedical titles increased 3 times between 1988 and 1998, the average number of subscriptions held by 194 medical libraries decreased by only 1.5%. McCabe concludes that demand is very price inelastic at the firm level, a sufficient condition for the exercise of market power, and thus the existence of high margins. Can we conclude from this information that the market for scholarly journals is non-competitive? Of course high margins are not necessarily inconsistent with competition. Profits may be low due to large fixed costs. However, McCabe's econometric estimates reveal that quality- and cost-adjusted price increases have been substantial over the past decade. This evidence suggests that profits are high and that the market for scholarly journals is not competitive.

    A number of factors contribute to this environment in which journal publishers operate. While faculty may desire to publish to share their work with colleagues, they are also driven to publish by the promotion and tenure system and the need to obtain grants. Faculty will submit their articles to the most prestigious journals in their fields or to the title that will most likely accept their work. As a title gains in prestige as measured by its impact factor (the frequency with which the average article in a journal has been cited in a particular year), it becomes more and more attractive to faculty, both as authors and readers, and takes on a dominance in the field. Faculty expect their libraries to subscribe to both the prestigious titles and to the second tier titles in which they publish.

    Libraries, whose mission is to serve current and future scholars, purchase as many titles as their budgets will allow. With journals, their practice had been to set up a subscription which was generally not reviewed unless an unusual event, such as a dramatic price increase, drew attention to it. Once in a library's journals collection, there was little chance of a title being canceled. As publishers raised prices, libraries did everything they could to protect their journals budgets. But they had also inadvertently protected faculty from the reality of journal prices. In the professionalization of collection development in the 1960's and 70's, responsibility for selection had migrated from faculty to librarians. Faculty were no longer aware of the institutional prices that were being charged for the titles in which they published and to which they expected the library to subscribe. It is more typical, now, for libraries to review all of their journal titles on a routine basis to cull out little used, low value, or no longer relevant titles.

    Yet another factor contributing to the market dynamic was the hesitance of scholarly societies to compete with well-established titles or to launch new titles in developing fields. Launching titles in new fields or niche areas could draw papers away from established society titles jeopardizing both their clout and financial stability. Thus, authors turned to commercial publishers to support their interests. As these new journals grew in size and prominence, it was less and less likely that societies would take the financial risk to compete. They could not afford to carry the loss for the approximately 5-7 years needed for a new journal to break even (Tenopir and King, 2000).

    Libraries undertook a number of strategies to cope with the continuing increase in journal prices. They reduced dramatically the purchase of monographs, asked their administrations for special budget increases, and when these were not enough, canceled millions of dollars worth of serials. Libraries also turned to document delivery services and developed strategies to improve interlibrary lending performance. They sought to re-invigorate cooperative collection development programs. More recently, site licensing of electronic resources helps eliminate the need for duplicate print subscriptions while consortial arrangements are reducing unit costs at individual institutions while spreading costs across a wider range of libraries. While all of these strategies can help local institutions better manage their budgets, none of them have changed the underlying dynamics of a system where the publisher, operating in a non-competitive environment, can unilaterally set prices without a countervailing pressure from competitive forces.