Ted Bergstrom University of California Santa

Barbara

A platform is an intermediary that plays an economically non-trivial role in interaction between producers and consumers. (Rochet and Tirole, 2003)

Credit cards Merchants and Consumers

Game Consoles Game Developers and Players

Shopping malls Merchants and Consumers

Academic Journals Authors and Readers

Most interesting examples have economies of scale and network externalities to platforms.

Platforms have some market power.

Mainly from suppliers Credit cards (merchants) Game consoles (game designers) Shopping malls

Mainly from demanders Academic Journals

Proposed explanation: Elasticity of demand.

Platforms load charges on side of platform that is least responsive to price.

Most merchants accept all major cards Most customers do not carry all cards. Customers have little need for more than one

card and will use the card that is cheapest. Merchants will lose sales if they don’t have all

cards. Doesn’t pay to use only the cheapest card.

Price competition is intense on customer side, less so on merchant side.

Merchant demand more inelastic. Companies load cost onto merchants.

Publishing is valuable to authors. Promotion, pay raises Estimate—one citation worth $50 annual

salary. Reading journals is valuable to

researchers. Which side has more inelastic demand?

Scholars want to read all the journals in their area. An extra copy of a cheap journal is no substitute for an expensive journal. Scholar wants access to both.

Scholars don’t need to publish in all journals.

With two equally good journals, publishing twice in the cheap one is about as good as once in cheap one, once in expensive one.

Both are important players.

Publisher Publisher

TypeTypePercent of Percent of CostCost

Percent of Percent of CitesCites

Non-ProfitNon-Profit 9% 62%

For-ProfitFor-Profit 91% 38%

Non-profits supply most of the Non-profits supply most of the citations. citations.

For-profits collect most of the money.For-profits collect most of the money.

Journal Title Price/Article Price/Cite

Applied Economics $26 $95

American Ec onomic Review $2 $1

Int Rev of Law and Economics $29 $51

Journal of Law and Economics $4 $3

Int Journal of Tax and Public Finance

$18 $37

National Tax Journal $4 $4

Journal of Development Economics $27 $28

Econ Dev and Cultural Change $7 $4

Page charges in the sciences. 7 top ecology journals are all non-profit

and have author page charges $50-$150. Less prestigious non-profits, lower page

charges. (median $30). For profits have no page charges. Explanation:

Non-profits seek wide distribution. For profits seek profit and so price on the

inelastic side of market.

Pricing on subscribers side of platform allows pricing far above average cost, plunders university budgets, and shuts out readers not at wealthy universities.

If pricing were only on the author side, the more elastic demand would force pricing close to average cost. Some deterrant effect for authors, but likely to be small.

The Big Deal from commercial publishers

Bundling of electronic site licenses for publishers’ entire portfolio.

Price discrimination and library by library negotiation

So far they have managed to keep prices far above average cost.

High-priced, high overhead: PLOS in biology and medicine: Author fees

$2000-$3000 Low-priced, low overhead

Economics bulletin (zero charges) Runs on donated labor and university overhead

fumes Theoretical economics

$100 submission fee. Electronic Journal of Statistics

No charges or outside support No copy-editing, papers submitted in TeX.

Authors of accepted papers can opt to pay an extra fee for paper to be made open access. Springer and Elsevier $3000 per article Am Chemical Society $1000 per article Am Physical Society $900-$1300 Natl Academy of Sciences $1000 Oxford Univ Press $1500 Cambridge Univ Press $2700

Small uptake so far. All programs very new.

Self-archiving by authors. Study of Economics journals (Bergstrom-

Lavaty) Free online versions available for 90% of economics

articles published in high impact journals For 50% of articles in lower impact econ journals Only 30% of political science journals.

Expansion of posting increases price elasticity of demand, should ultimately lower prices

Some worry that it may kill even low priced journals. I doubt it: Here’s why…

Subscription of commercial journals will fall only if demand becomes more elastic. How can universities accomplish this?

Encourage (maybe mandate) self-archiving. Show backbone in cancelling over priced

journals. Set firm thresholds of value per dollar and refuse to subscribe to things that cost more. Users still will have access to pay-per-view if

they really value articles in overpriced journals.

To employ value-based subscriptions, libraries need to be able to evaluate bundles and know when to reject bundles and subscribe only to single journals that are above threshold.

Help is on the way. Journal prices.com Eigenfactor.org

Uses Google-like algorithm to calculate weighted citations from other journals. Gives an estimate of fraction of scholar

accesses going to each journal. Presents estimates of value per dollar for

each journal. Shows cheapest way to buy any given

fraction of citations. Also evaluates journals not in the ISI

database.

Tools for evaluating package versus buying best deals one by one.

This will help libraries to bargain intelligently over bundle prices.

OK,, I’ll Quit

Ruins of Library at Ephesus Ruins of Stanford Library