The Market for Scientific, Technical and Medical Journals: a Statement by the Office of Fair Trading (OFT 396)

Citation

Vickery, J. (2003), "The Market for Scientific, Technical and Medical Journals: a Statement by the Office of Fair Trading (OFT 396)", Interlending & Document Supply, Vol. 31 No. 1, pp. 61-64. https://doi.org/10.1108/02641610310460745

A disclaimer

Perhaps this review should have been written by a trained economist, but to appreciate the practical significance of the issues one needs to work in the research library world. As someone involved in library acquisitions at the British Library for many years I hope my views are representative, if not wholly objective. The subject has long been, and remains, contentious.

The background

The report is a welcome contribution to the debate on the serials crisis. Its formal remit is stated as, “This paper reports, under section 125(4) of the Fair Trading Act 1973, on the OFT’s informal consultation regarding the market for scientific, technical and medical (STM) journals” (1.1)

There are many references to the recent Competition Commission Report: Reed Elsevier plc and Harcourt General inc: A Report on the Proposed Merger (Cm 5184), 2001, (available at the Web site http://www.competition‐commission.org.uk), which stands as background to the OFT statement and is also quoted frequently in the text. This earlier report, while allowing the merger by the narrowest of margins, recommended that the government should “consider whether a wider review is necessary” (2.2). The focus in the OFT document is therefore on the UK market for commercially‐published STM journals, and in particular the reasons for their high price, rather than on any particular merger or take‐over.

The OFT did not carry out any new investigations, but based its statement on the Competition Commission report, invited submissions, of which there were 27 (listed but not published in an Annexe), and eight selected references from “academic literature on journal pricing” (2.2).

The statement is clear and concise, in the best Civil Service tradition, comprising only 20 pages. It contains no obvious blunders or misapprehensions, but occasional lapses reveal a lack of inside knowledge, at least of jargon, e.g. “there can be strong resistance to cancelling a journal where the library has already collected a run of editions” (6.5) – but these do not undermine the conclusions.

In the document the OFT summarises the evidence objectively, and reaches four main conclusions. The first two are negative, the third and fourth inconclusive:

(1) There is evidence to suggest that the market for STM journals may not be working well.

(2) Many commercial journal prices appear high, at the expense of education and research institutions.

(3) It remains to be seen whether market forces, perhaps enhanced by the use of new technology, will remedy the problems that may exist.

(4) For now it would not be appropriate for the OFT to intervene in the market, but the position will be kept under review (1.1).

These conclusions are examined below.

The evidence

The OFT notes from the CC report that the top six publishers account for 44 per cent of journal articles, and that “a merged Elsevier Harcourt would [and now does] account for around a third of UK sales by value” (4.7). This may not constitute a monopoly but it severely restricts the librarian’s freedom of manoeuvre when selecting scientific literature.

Proof that there is something wrong with this market is derived primarily from the disproportionate cost of commercially published STM journals. “Prices are high for commercial journals. The OFT recognises that there are a variety of possible counter‐arguments to this finding. However, we have not seen sufficient evidence to be persuaded by any of these” (5.5). This is a clear indictment, given the standing and experience of OFT personnel.

The OFT finds that “commercial journals are 5.5 times more expensive than non‐commercial in terms of price‐per‐page, and ten times more expensive in terms of price per citation” (5.4). This discrepancy can also apply in non‐STM subjects, as this very journal shows: Interlending & Document Supply cost under £30 a year when it was published by the British Library, and over £400 a few years after being bought by its present publisher. Librarians seem willing to pay whatever publishers deem the market price for certain journals.

The report conscientiously examines other economic arguments. Claims that the costs of investment warrant high prices are dismissed: “The OFT is not persuaded by this cost justification argument. Any such argument is also brought into question by the fact that the average prices of commercial journals appear to be substantially higher than those of non‐profit journals” (5.3). This seems logical; if associations, universities and SPARC can price their print and electronic journals reasonably, why not others?

As for purely electronic expenses, the OFT says “one might have expected these … changes to have reduced the marginal costs associated with producing and delivering journals” (5.6, my emphasis). Other arguments considered and discounted include short print‐runs, cross‐subsidisation and risk.

The OFT also notes that STM publishers make suspiciously high profits from their products, and it reaches the damning conclusion: “In addition to the evidence on prices, the OFT notes that the overall profitability of commercial STM publishing is high, not only by comparison to ‘non‐profit’ journals (which is not surprising), but also by comparison to other commercial journal publishing” (5.9). So STM publishers with unwarrantably high prices are the proper focus of attention.

The role of subscription agents is touched on, but is not regarded as a key component of the debate. Libraries have to pay for the journals however they acquire them, so this is reasonable.

Consortial “big deals” can be seen as advantageous, especially by smaller libraries, but the report observes that libraries are being induced to take complete packages of a publisher’s titles, and comments: “While there are clear efficiency arguments for such bundling, it may make it difficult for rivals to offer alternatives to particular journals in these bundles, thereby foreclosing competition and leading to the market tipping towards publishers with substantial portfolios” (5.13). The bundling of journals can also lead to price insensitivity regarding individual titles whose price may creep up unnoticed. Consortial buying power has been useful, but there are indications that libraries are returning to individual deals, as the benefits of group purchase become less powerful and price options even out.

Some of the publishers’ evidence to the OFT seems to have offered concessions, while at the same time claiming that they are merely responding to the changing marketplace. Publishers aver that the real problem is the sheer number of articles waiting for publication – all they do is maintain quality and make them available at an economic price. But it is difficult, as noted in the report, for a new journal to establish itself in a market that is under the tight control of a few large players.

Of paramount importance is the fact that STM journals compete on quality and reputation rather than price. Librarians are well aware that one title cannot be simply substituted for an equivalent, cheaper, one. This seems to undermine classical economic analysis, which assumes a concept of “like” goods. The CC report quoted by the OFT notes that “this can sometimes lead to perverse results. For example, if a very well regarded but expensive journal increases its price further, it is the cheaper, but less‐well regarded journals in the same field that are cancelled, so that the subscription to the leading journal can be maintained. This means that a publisher sometimes has the potential to increase his market share by raising his prices” (CC Report: 2.61) (6.3, my emphasis). This gives the publishers of well‐established journals a virtually unassailable position, and is surely the main reason library customers have put up with high year‐on‐year inflation for so long, repeatedly cutting the budget for other serials and books to do so. One journal on comparative neurology now costs £13,000 per year, yet is apparently so important in its field that no‐one questions the price.

Some arguments and analysis from economic theory are given in the report. A discussion of “co‐ordination games” and “sub‐optimal market equilibrium” provides a new angle, but is not easily grasped by non‐economists. A surprisingly lengthy section is devoted to a discussion of something called the Parable of the Anarchists Annual Meeting (6.8). This may not seem obviously relevant but it must be admitted that some academics, like some anarchists, find genuine collaboration problematic. “In the case of STM journals, not only may the leading experts and their readers be looking at the quality rather than the price of such journals, but the required en masse transfer of leading experts and their readership to an alternative journal may be difficult to achieve” (6.11).

Various potential remedies are touched on, the most obvious of which is voluntary price restraint. The report suggests somewhat hopefully that “a point may have been reached where it is in the interests of publishers, as well as customers, for the level of price increases to be reduced” (7.2). Despite recent commitments from some publishers, including Elsevier, most libraries are still paying around 8 per cent more every year for their STM journals when general inflation is 2 per cent and acquisition budgets stagnant. Between 1986 and 1999 the unit cost of all journals (not just commercial titles) rose by over 200 per cent (www.arl.org), while general British inflation was around 60 per cent over the same period (www.statistics.gov.uk). For every year that this applies, libraries acquire a smaller proportion of the total literature in scope for their collections.

If STM journals, whether in print or electronic format, continue to be so expensive as to be unaffordable by many libraries, then document suppliers, especially those who negotiate electronic delivery rights, will still have a role to play. But their prices too will have to increase, along with costs.

The OFT recognises that SPARC and other initiatives have brought some much‐needed competition into the market, and is correct in saying that it is difficult to predict their long‐term impact. The report exaggerates the power of academics and libraries to provide a solution to the problem; it notes various positive developments, but does not make it clear that so far they have had relatively little effect. The Public Library of Science, the Budapest Open Access Initiative and the Open Archives Initiative (the last two of which are not mentioned) have been slow‐moving, and e‐print servers have been effective in selected subjects only. The OFT is, not surprisingly, better at weighing evidence against theory than at evaluating the fast‐moving scene as experienced on the ground.

There is a brief general discussion of the impact of technology, with implicit assumptions that standard pricing is set as print+electronic, and that the “journal” concept will continue to exist in the new medium. Electronic access does not of itself mean that prices will fall, as the publisher’s pricing policy can be adjusted to fit market expectations. The OFT opines “it is too early to assess what will be the impact of this combination of ICT and academic power, but there is a possibility that it will be a powerful restraint on exploiting positional advantage in the STM journals market” (7.8). It is to be hoped that this prognostication is sound, but the OFT’s supposition that market forces largely in the form of the power of academics will solve the problem is open to question.

The conclusion

Having reviewed the case for the prosecution the OFT concludes “we believe that there is evidence that the market for STM journals may not be working well”. This is reassuring, but the next statement is less encouraging: “… this does not, however, appear to the OFT to be a matter warranting further investigation on our part at this stage”. Another half‐turn follows, softening the blow: “However, if competition fails to improve, or should additional significant information come to light, we may consider further action” (8.1).

So, no knight in shining armour is galloping over the horizon, although the tournament field is ready for action. The official recognition that something is seriously amiss is worth having, even if it can be easily shrugged off by the publishers. The conclusions are sensible and balanced, but the recommendations could have been stronger. The onus is on STM publishers to act reasonably, and indeed there are some signs of this, e.g. Elsevier’s commitment to contain price increases and its deals on archiving. The basic problem, however, remains. If overpriced cars can be targeted for action, why not STM journals?

Can we envisage anything as drastic as government intervention, in times when the concept of free trade is sacrosanct? In a market as politically low‐profile as the acquisition of scientific journals by research libraries, the UK government is unlikely to risk alienating big business by taking punitive action. How distorted must a market become before something concrete is done at UK, European Union or worldwide level?

The international aspect of the issue is raised in the final sentence of the report: “Although the UK is an important base for, and user of, scientific journals, it accounts for a fraction of the world market and so [we] would wish to consider whether any action might be best conducted internationally” (8.1). This may well prove to be the key factor in future developments. The OFT correctly identifies that a key feature of this market is its global reach, but there could have been more discussion of the economic implications.

The OFT Press Release expresses the hope that “market forces harnessing new technology may change [the market] without the need for intervention”. Indeed, if scientists start taking matters into their own hands by retaining copyright in their own work, or disseminating it on the Internet before or after publication, then the stranglehold of the STM publishers may be loosened. In practice this is only likely to happen, if it does, in parallel with present practices and over a number of years. Librarians need not start planning how to spend their surplus acquisitions funds just yet.