Power Plays in Publishing: Market Dominance and High Prices

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Key Points

  • The five largest journal publishing firms account for as much as 70% of the published papers in certain subject disciplines.
  • These publishers have recorded gross profit margins in excess of 60% for more than a decade, with cost of subscriptions increasing anomalously over the years.
  • Journal prices have shown significant increase even though scientific communities provide the publishers with free content and review, effectively minimizing marginal costs.
  • Fideres’s research shows that the journal publishing market exhibits many features common to collusive markets, including high barriers to entry and increasing market concentration.

Background

In February 2019, University of California announced that they were terminating their subscription deal with the major journal publishing company Elsevier, noting that the cost of the publisher’s subscriptions was becoming unreasonably expensive.  According to the university librarian and economics professor Jeffrey MacKie-Mason “The prices of scientific journals now are so high that not a single university in the U.S. — not the University of California, not Harvard, no institution — can afford to subscribe to them all”.

Academic libraries account for approx. 70% of journal publishing revenues and are the largest group of purchasers of journal subscriptions. Scientific, Technical and Medical (“STM”) publishing includes formal and informal elements such as journals, articles, books, conference presentations, pre-prints and digital objects.

Journals form a significant part of the STM publishing market and account for approx. 38% of total revenues generated in this sector. In 2017, the global STM journal publishing market revenues was estimated to be approx. $9.9bn.

Journal Publishing Cycle

When an author wants to publish an article, they submit it to journal editors, who coordinate the peer-review process and get the article ready for publishing with the journal publisher.  The publisher either directly or indirectly (through agents) sells the journal to libraries, who make it available to the readers.  There are mainly two types of journals – open access journals, where publishers provide the articles free of charge, and regular journals paid by subscription. In most cases, open access journals charge a publication fee to the authors.A diagram illustrating the publishing process for academic journals showing how the author delivers to the editor and the reader, the editor then sends revisions back to the author before sending it to referees and the editorial office. The editorial office then send it to publishers who upload it to the publisher platform before it goes to an agent and libraries where readers then once again receive the journal.

Anticompetitive Markers

Plus Factors

In the absence of a “smoking gun” proving collusion, courts often consider a range of pro-collusive characteristics in a given market to assess the likelihood of anticompetitive conduct. Collectively, these are known as “plus factors.” Among other potentially relevant factors, the list includes:

  • High market concentration – The market for journal publishing is highly concentrated. In the Natural and Medical Sciences (NMS) and Social Science and Humanities (SSH) fields, the top five publishers have increased their combined market share from 10-20% to more than 50% over the past 30 years.A graph showing the percentage of NMS articles and SSH articles published by the top 5 publishers between 1990 and 2011. By 2011, just over 50% articles were published by top 5 publishers.

 

  • Market share stability – The market share of the top five publishers in some subject disciplines (for example, the NMS journal market) have remained stable at around 50% for the last decade. We estimate the above-ground drainage and the below-ground piping systems market in the UK to be worth more than £250m per year in terms of revenues.
  • Barriers to entry – Academic research also shows that academic publishing mergers and acquisitions are generally associated with price increases of journals.  The sector has been characterised by significant horizontal and vertical integration in the last two decades, which has limited the capacity for new publishers to enter the market.A bar chart showing mergers and acquisitions by 3 major publishers, it illustrates the number of all mergers and acquisitions between 1997 and 2016.

 

Anomalous Pricing Patterns

These plus factors are accompanied by other market characteristics that suggest inflated pricing in the sector. The mean price per article across all subject disciplines increased by 134% over the period 2003-2019, particularly 22% between 2013 – 2019.  We observe significant price increases even after adjusting for relevant producer price indices (“PPIs”) related to publishing.A line graph showing normalised mean price per article v. deflated mean price per article between 2003 and 2019, with the points steadily increasing as time goes on.

 

Potentially Excessive Profits

Publishers neither pay for the provider of the underlying content (authors) nor for the quality control (peer review).  Fixed costs for journals mainly comprise of manuscript preparation and review, both of which are provided free of charge by the scholarly community. On the publishers’ side, average fixed costs range from $20 – $40 per page, which doesn’t explain open access publication fees as high as $5,000.  With electronic publishing, the marginal costs of any additional subscription to the publisher are estimated to be zero.

Given the above factors, it is unsurprising that publishers consistently report high profit margins. The average gross margins of the three publicly traded publishing companies is shown below. These margins have stayed above 64% and has consistently increased over the years between 2009-2017.Line graph showing average gross margins (%) for the top 3 journal publishers from the 2009 financial year to the 2017 financial year. The line steadily increases from between a 64 and 65% margin in 2009 to almost 69% in 2017.

Conclusion

The journal publishing market exhibits significant price increases and high profit margins, along with plus factors facilitating collusion. Complaints alleging anticompetitive conduct in the journal publishing industry have already been made with British and European regulators.

We await the outcome of these investigations with interest. It remains to be seen whether subscription prices drop in the face of increasing public scrutiny, or whether US subscribers will seek to recover losses through the courts in the future.

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