RE: Secret pricing (RE: Response from Ted Bergstrom to Ann Okerson)

["Rick Anderson" <rickand@unr.edu>]

> Confidential pricing allows for price discrimination to take place (the
> charging of different prices to different customers based on their
> ability or willingness to pay).  Price discrimination is practiced
> because it leads to a more efficient market and greater profits to the
> producer than charging a uniform price to all customers.  It is normally
> practiced in markets where the producer has some monopoly power, which
> means that the customer cannot substitute one product or service for
> another.

I think Phil and I are saying the same thing in two different ways. Both
of us agree that secret pricing allows the vendor to maximize profits.  
My argument is that it's not in libraries' best interest for vendors to
maximize profits, and therefore we should hesitate to agree to secret
pricing.  (I would also argue that it's not in libraries' best interest to
drive down profits as far as possible, but that's a topic for a separate
thread.)  Price discrimination is a separate issue from secret pricing, I
think.  Price discrimination is a potentially good thing, but it doesn't
depend on confidentiality -- publishers and vendors discriminate (quite
appropriately, in my view) on the basis of institution size and curricular
emphasis all the time without resorting to secrecy.

> To answer Rick's question, how would Library A be lead to believe that
> it was getting a better deal than everyone else under the cloak of price
> confidentiality?  The answer is *discounting*.  In most states, hotels
> are required to post daily rate on the back of your hotel room door.  
> This is "list price" and no one ever pays it.  Everyone always pays a
> much reduced price, and because you don't know what the person in the
> next room paid, you come to the conclusion that your bargain $99/night
> room was a great deal, as long as you don't find out that the guy next
> door was charged $69/night.

The problem with this analogy is that discounting doesn't depend on
secrecy.  There's a big difference between the kind of varied pricing you
see in hotels and the kind that occurs when a vendor says "I'm going to
offer you a great deal as long as you don't tell anyone else about it."  
The difference is that hotels' different pricing levels are not usually
the result of secret deals.  People who find the $69/night deal have
usually simply looked harder than those who settled for the $99/night
deal, or they fall into some special category (government employee,
frequent-guest program participant, etc.) that gives them access to a
special price. In such cases, the pricing available to people in those
categories is usually publicly known or knowable.  Go online and make a
reservation claiming to be a member of the military and you'll see the
rate they get; call the hotel up and ask what the price would be if you
belonged to their club, and they'll tell you.  The $69/night guy isn't
getting a special deal in return for keeping it secret.

> In the same way, most of the big publishers set "list prices"  for their
> journals, and almost no libraries ever pay that price.  Anyone who has
> been involved in negotiating for serials packages also knows that the
> first deal on the table proposed by publishers is never the one that is
> accepted.  In sum, Rick's hypothetical scenario where everyone believes
> they are getting a good deal in world of confidential pricing is
> achieved by a combination of price discrimination and discounting.

This, too, is a separate issue.  I'm all for negotiated pricing.  What I
object to is a contract that requires us to keep the results of our
negotiations secret.  Discounting doesn't depend on secrecy any more than
price discrimination does.  What secrecy does is isolate us from each
other, so that each of us must negotiate in an information vacuum. I may
end up with a better price than Phil, or I may end up with a worse price
than Phil (while being led to believe that I'm getting a better one).  I
have no way of knowing.

Of course, the real bottom line is whether or not the product I'm
considering buying is worth the price at which it's being offered.  If a
database is worth $20,000/year to me, then maybe it shouldn't matter that
much whether another library paid more or less for it.  (For one thing,
the product may be genuinely more or less valuable to another
institution.)  What I do object to is vendors who try to tell me that if I
keep the pricing secret, I'm necessarily going to come out ahead of my
colleagues.  For one thing I don't believe it's true, and for another
thing, I'm really not interested in putting my colleagues at a pricing
disadvantage.

But I should acknowledge, since I'm on my high horse about this, that I
haven't always resisted the temptation to agree when a putatively great
deal is offered on a confidential basis.  I think I should always resist
it, but sometimes they catch me on a weak day...

----
Rick Anderson
Dir. of Resource Acquisition
University of Nevada, Reno Libraries
(775) 784-6500 x273
rickand@unr.edu