Open Access, the Hold‐Up Problem and the Academic Journal Market

In May 2016, Mark J. McCabe and Christopher M. Snyder have published a working paper entitled “Open Access as a Crude Solution to a Hold‐Up Problem in the Two‐Sided Market for Academic Journals” in the National Bureau of Economic Research (NBER) Working Paper Series.

A Blog Post by Pablo Markin.

In their empirical study, McCabe and Snyder have compared “the efficiency and profitability of traditional versus open access under various market structures (monopoly, Bertrand competition) and extensions (non-profit journals, bundling, hybrid pricing)” (ii). The researchers have suggested that the “advent of digital journals can lead to welfare losses through the loss of commitment, resulting in monopoly subscription prices. Some of these losses can be undone if the effect of hybrid pricing is layered in” (28). The primary finding of this econometric paper is that “competing traditional journals may remain quite profitable despite offering products which are perfect substitutes (from an ex ante perspective, different journals are just different names applied to a given collection of articles). The inability to commit to subscription fees means that once a journal has assembled a volume of articles, it can earn monopoly rents on the reader side ex post. These rents are not necessarily dissipated in the competition for authors ex ante because submission fees cannot be negative” (2).

The findings of this article contribute to the “larger theoretical literature on two-sided markets as applied to such markets as telecommunications, payment-card systems, and media” (3). The models that McCabe and Snyder have tested have “three types of economic agents: authors, readers, and journal” (8). As these authors explain, “[a] journal may like to promise that it will maintain low subscription fees to attract submissions from authors who value wide readership into the future (with attendant increases in cites and prestige). However, the journal may be unable to commit to a particular sequence of positive subscription fees in the future, leading to a potential hold-up problem, whereby the journal monopolizes the reader side once it attracts submissions rather than expanding readership as the authors would prefer” (27).

In their conclusion, McCabe and Snyder further indicate that the “loss of revenue on the reader side may be more than compensated by solving the hold-up problem on the author side” (27). These authors additionally propose that “there can be excessive open access in the market, with, for example, a monopoly journal choosing open access when traditional access would be socially more efficient” (27).

By Pablo Markin

Featured Image Credits: Metropolitan: Exterior view from the West, May 30, 2011 | © Courtesy of Henry Pisciotta/Penn State University Libraries Architecture and Landscape Architecture Library/Flickr.