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La Révolution Dévore ses Enfants: Pricing Implications of Transformative Agreements

W. Benedikt Schmal

Abstract

With the widespread dissemination of the internet, academia envisioned free availability and rapid dissemination of new knowledge. However, most researchers continued publishing in established journals instead of switching to fully open-access alternatives. That preserved the market power of the large commercial publishing houses owning thousands of journals behind paywalls. To turn these portfolios into open access, research institutions around the globe have been negotiating `transformative agreements:' Papers are published fully open access, and universities pay only for the publication but not for subscriptions any longer. In this paper, I demonstrate that publishers controlling a large stock of paywalled publications can use them as leverage to ensure high revenues even with decreasing publication numbers. By that, this industrial policy may harm competitors that only publish under open access. This could harm competition and perpetuate the position of the incumbent players.

La Révolution Dévore ses Enfants: Pricing Implications of Transformative Agreements

Abstract

With the widespread dissemination of the internet, academia envisioned free availability and rapid dissemination of new knowledge. However, most researchers continued publishing in established journals instead of switching to fully open-access alternatives. That preserved the market power of the large commercial publishing houses owning thousands of journals behind paywalls. To turn these portfolios into open access, research institutions around the globe have been negotiating `transformative agreements:' Papers are published fully open access, and universities pay only for the publication but not for subscriptions any longer. In this paper, I demonstrate that publishers controlling a large stock of paywalled publications can use them as leverage to ensure high revenues even with decreasing publication numbers. By that, this industrial policy may harm competitors that only publish under open access. This could harm competition and perpetuate the position of the incumbent players.
Paper Structure (7 sections, 3 theorems, 12 equations, 3 figures)

This paper contains 7 sections, 3 theorems, 12 equations, 3 figures.

Table of Contents

  1. Introduction
  2. Model
  3. Pricing Considerations of the TA Publisher
  4. Optimal setting of the PAR fee
  5. Profit of a monopolistic publisher
  6. Competition with a full open access publisher
  7. Outlook

Key Result

Proposition 1

With a transformative agreement, a publisher owning a portfolio of paywalled publications can monetize it by assigning the 'read' part of the PAR fee a higher emphasis if its number of TA publications $N$ falls below the threshold $\tilde{N}$, i.e., Even though the fee decreases in decreasing demand, this is stopped once $\tilde{N}$ is reached due to the switch to relying entirely on the 'must st

Figures (3)

  • Figure 1: Optimal price setting of the PAR fee as a function of $N$
  • Figure 2: Optimal price setting of the PAR fee as a function of $N$ with $\rho(N)$
  • Figure 3: Profits as a function of $N$ with $\rho(N)$

Theorems & Definitions (3)

  • Proposition 1
  • Proposition 2
  • Proposition 3