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

[Phil Davis <pmd8@cornell.edu>]

Rick and Chuck are debating the issues of what constitutes competition in
the journal marketplace.  Below is an excerpt from a excellent and
readable interview of Mark McCabe, and economist who worked for the DOJ
Antitrust Division.  McCabe describes the effects of what he calls the
"portfolio effect".  The full article can be found at:

Poynder, R. (2002). A True Market Failure: Professor Mark McCabe talks
about problems in the STM publishing industry. Information Today, 19(11),
1,3.  Available from the World Wide Web:
http://www.infotoday.com/it/dec02/poynder.htm.

EXCERPT

"Unlike the conventional approach to this problem--which assumes that an
individual user's preferences for journal content define the market and
thus limit its scope to a handful of titles, the portfolio model is based
on library behavior and permits a broader antitrust market definition.
Once this step is taken, the basis for the anticompetitive effects is
familiar to any economics undergraduate: When the price of one journal
increases, owners of other titles have an incentive to increase their
prices too. Moreover, since larger portfolio firms can better internalize
these "pricing externalities," they find it profitable to set their prices
higher than would be observed in a market populated by smaller firms."

He then provides an example of this

"Consider, for instance, the legal market. When West and Thomson merged in
1996, the U.S. Department of Justice reviewed the companies' legal serials
-- e.g., reporters and treatises -- and in order to avoid any
anticompetitive effect told them to divest all overlapping titles. Yet if
you look at that merger in terms of its subsequent price impact, you see a
30-percent price jump. The only explanation of this can be the portfolio
effect, since the content overlap had been eliminated."


Philip Davis, Life Sciences Bibliographer
pmd8@cornell.edu