Journal Pricing and Mergers: A Portfolio Approach

Despite their influence on the careers of economists, the production and pricing of scholarly journals have received scant attention from the profession. By contrast, the issue of journal quality and scholarly research productivity have been studied in far greater detail (a search in the EconLit database using the term “journal” generates several dozen papers on this topic). Although there may be a number of reasons for this “imbalance,” it is likely that the tenure process, combined with the low (if not zero) effective cost of journals on campuses have influenced our research agenda. In other words, while professors worry about their job security (publish well, or perish), others—their librarians—are charged with maintaining “free” access to all relevant journals. Of course, this pattern is observed not just in economics but across academic disciplines. In recent years, however, easy access to journals has been threatened. Beset by persistent journal price inflation (especially in the socalled STM fields, or science, technology, and medicine) and stagnant budgets, many university libraries have been forced to reallocate dollars from monographs to journals, to postpone the purchase of new journal titles, and in some cases, to cancel titles. As a consequence, libraries often relied on interlibrary loans to satisfy faculty demands. This situation and its possible causes has been studied at great length in the library science literature. With few exceptions, a consensus has evolved there which focuses on the growing importance of commercial publishers in the market for scholarly journals: Over the past decade or more, commercial firms have aggressively raised prices at a rate disproportionate to any increase in costs or quality. This appears to be especially true for the largest commercial firms. Although the analysis underlying these conclusions is generally not of the multivariate sort, it is suggestive enough to warrant further investigation. * School of Economics, Georgia Institute of Technology, 781 Marietta Street NW, Atlanta, GA 30318 (e-mail: mark.mccabe@econ.gatech.edu). I would like to thank many of my former colleagues at the Department of Justice, including Craig Conrath, Renata Hesse, Aaron Hoag, Russ Pittman, David Reitman, Dan Rubinfeld, and Greg Werden, as well as Jonathan Baker, Cory Capps, George Deltas, Luke Froeb, Jeffrey Mackie-Mason, Roger Noll, Dan O’Brien, Richard Quandt, Lars-Hendrik Roller, Steve Salop and Margaret Slade; seminar participants at the Federal Trade Commission, Georgia Tech, North Carolina State University, SUNY Stony Brook, and Wissenschaft Zentrum Berlin; and participants at the meetings of the American Economic Association, the European Association of Research in Industrial Economics, the Southern Economics Association, and Western Economics Association. The Association of Research Libraries and its members, the National Library of Medicine, the Georgia Tech Library, and the Georgia Tech Foundation have provided invaluable assistance. Expert data support was provided by a large group of individuals, including Deena Bernstein, Claude Briggs, Pat Finn, Doug Heslep, and Steve Stiglitz. Finally, I would like to thank the dozens of librarians and publishers who have provided me with important insights. 1 The exceptions are Janusz A. Ordover and Robert D. Willig (1978), Lisa Lieberman et al. (1992), George A. Chressanthis and June D. Chressanthis (1994), McCabe (2000), and Theodore C. Bergstrom (2001) . Ordover and Willig model the pricing of a single title to institutional and individual subscribers; Bergstrom’s paper discusses the differences between commercial and nonprofit economics journals. The other three papers are discussed below. 2 Increasingly, journals are available in both print and digital versions, and for some new titles only a digital format is available. See Carol Tenopir and Donald King (2000 Ch. 15). Starting in 1998, commercial publishers began placing their content online. Although major research libraries have generally responded by adding digital access, this shift is still in its early stages, especially in cases where library collections are more specialized, e.g., the typical biomedical library. For this reason, as well as the fact that more than two-thirds of the sample period occurred in a print-only environment, the emphasis of this paper is on the behavior of publishers and libraries in a print environment. The economic implications of digital access are considered briefly at the conclusion of the paper and are a subject of ongoing research. 3 See Martha Kyrillidou (1999). 4 See Tenopir and King (2000 Ch. 13), for a review of this literature. An alternative explanation for journal price inflation has been offered by Lieberman et al. (1992). They argue that entry by new titles over time has lowered circulation for existing journals, forcing the latter to raise prices to cover fixed costs.