Re: Libraries Urge Justice Departmen to Block Cinven and Candover Purchase of BertelsmannSpringer

["Anthony Watkinson" <anthony.watkinson@btopenworld.com>]

The argument of McCabe is that the mergers contributed to the price
increases. As Phil points out McCabe has analysed the data and assumed
cause and effect. As far as I can recall he has not extended his reseach
to actually ask the people pricing the journals in these companies at this
time why they increased prices in the way that they did.

I have written before (in Marcia Tuttle's newsletter) on how publishers do
their pricing. There are significant differences in the drivers from one
company to another and from one period to another, though also one basic
similarity in aim - the wish to maintain profit margins or surplus
margins. I can say that with much more authority than McCabe because I
have been involved in pricing journals in four major companies, one of
them non-profit. He is looking at it from the outside.

What I can tell the list from my own experience is that when I was the
publishing director of Chapman & Hall during much of the period covered by
McCabe is that, during this period, we bought a number of journal and book
lists. Thomson wanted to increase the size of Chapman & Hall both by
investment in staff etc leading to what publishers call organic growth and
by purchase.

I was of course involved in drawing up the business plans to justify the
purchases, and, although I often thought that aspects of them were
unrealistic, I can state categorically that none of them built in price
increases as a way of paying for the cost of purchase. Publishers are
optimistic. They have to be to start any new journals or keep a book list
going. They always assume that they can achieve ecominies of scale and be
more efficient (which does of course usually involve staff losses) in
running any list they buy. Thomson top management was always worried about
any price increases which were above average and were always insistent
that the maintenance of the number of subscribers was paramount.

I have no idea what Cinven + Candover policies are but no-one can assume
that they involve serious price increases


----- Original Message -----
From: "Phil Davis" <pmd8@cornell.edu>
To: <liblicense-l@lists.yale.edu>
Sent: Thursday, June 05, 2003 2:17 AM
Subject: Re: Libraries Urge Justice Departmen to Block Cinven and Candover
Purchase of BertelsmannSpringer

> There is some very good research illustrating the effect of mergers on
> market prices.
>
> In this article Journal Pricing and Mergers: A Portfolio Approach, Mark
> McCabe analyzed price increases between 1988-2001 for 2,000 biomedical
> titles and holdings for 194 libraries.  Based on his analysis, he writes
>
> "the results suggest that price increases were substantial during the
> sample period (1988-2001), that past mergers contributed to these
> increases, and that these effects occurred in a broadly defined portfolio
> market"
>
> and as an example,
>
> "The Reed Elsevier/Pergamon merger resulted in postmerger prices
> (1992-1994) that exceeded the average in the market by 17 percent.
> Compared to these two firms' premerger prices -- about 7 percent higher
> than the market on average -- the postmerger results suggest that the
> merger increased prices about 10 percent".  p. 264
>
> FULL CITATION
> McCabe, M. J. (2002). Journal Pricing and Mergers: A Portfolio Approach.
> American Economic Review, 92(1), 259-269.
> .
>
> Philip Davis, Life Sciences Bibliographer
> pmd8@cornell.edu