Pricing, Hunter, Davidson, Edelson, et. al.

[mark mccabe <mark.mccabe@econ.gatech.edu>]

Colleagues,

I have been eavesdropping on the backbench of this electronic community
for about 9 months.  After reading the latest exchange about journal
pricing I think it is time to make a small contribution.  During the past
year or so I have been privileged to speak at a number of
librarian/publisher meetings, to meet many of the participants, and to
listen to your expert opinions.  I have learned a great deal.

 I have also spent much of this time developing and refining my analysis
of journal pricing, a project first begun while I worked at the US DOJ's
Antitrust Division.  In particular, I have managed to construct a database
that includes not only prices and journal characteristics but also actual
circulation data (i.e. subscribers per journal for a random sample of
libraries).  I use this data to estimate what economists describe as a
"structural" model of supply and demand, i.e. one that reflects the
pricing behavior of firms.  This model allows me to test whether firms
enjoy market power, using some natural merger "experiments."  The results
(first reported at the Western Economic Meetings in San Diego this summer)
suggest that, after one controls for quality, number of articles,
differences in circulation, etc.  firms such as Elsevier do wield
considerable market power, and that recent mergers have raised prices
considerably.  Furthermore, even after accounting for these various
factors, a substantial residual price inflation remains.  

What's going on?  Although "expensive" journals may offer a high quality
product, it seems clear that many commercial publishers are maximizing
profits (short or long run profits?), given the type of demand they face.  
This demand for journals is highly inelastic (that is, large price
increases result in relatively small changes in subscriptions).  So yes,
commercial publishers are apparently enjoying wonderful margins, but
library demand is in part responsible, at least given present
institutional arrangements.

If you have some time (and patience for econo-speak) I encourage you to
download my working paper (go to
http://www.econ.gatech.edu/~mmccabe/journalWEA.pdf);  I also understand
that a short nontechnical update of this research will be published in the
next issue of Against the Grain.  If you'd like to obtain a copy of the
latter, feel free to contact me.

Thanks for your time.

Mark McCabe


Professor Mark J. McCabe
School of Economics
Georgia Institute of Technology
781 Marietta Street NW 
Atlanta, GA 30318
(V) 404 385 0512 (F) 404 894 1890
mark.mccabe@econ.gatech.edu 
<http://www.econ.gatech.edu/~mmccabe/index.html>