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Prices, Models, and Fairness: A (Partly) Imaginary Phone Conversation

My office's phone

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[Phone rings.]

Librarian: Hello?

Sales Rep: Hello! Robert from Acme Scholarly Journals here. As you know, for the past year we’ve been working on a new pricing model for our journal package, and now that it’s ready my boss and I would like to come visit your library and explain it to you.

Librarian: Things are pretty busy here. Can’t you just explain it to me quickly over the phone, or send me the information by email?

Rep: We’d really like to deliver the explanation in person, since the new model is kind of complicated and we want to make sure you and your staff understand it.

Librarian: The thing is, a meeting like that will be very expensive for me. If I’m there with three of my staff, and the meeting takes an hour, that ties up four staff hours—that’s half a day’s work that won’t get done while we learn about your pricing model. At the end of the meeting we might understand the model, but how does that really help me?

Rep: It will help you because you’ll understand why the pricing model is changing and how it works. You’ll understand that your new price isn’t just a number that we picked out of the air.

Librarian: I’ll take your word on that. I’m sure you guys invested a lot of time and thought in coming up with your new pricing model. The thing is, the logic and structure of your pricing model don’t ultimately make much difference to me. What matters is the price my library ends up with. If the price is acceptable, then how you guys arrived at the price doesn’t matter that much. And if it’s not acceptable, then the model still doesn’t matter. Ultimately, all that matters is the price.

Rep: But one of the purposes of our our new model is to make pricing more equitable. Doesn’t it matter to you whether we’re setting prices fairly across institutions?

Librarian: All other things being equal? Yes, I like fairness a lot. But I strongly suspect that “more equitable pricing across institutions” really just means higher pricing for my institution, and that kind of complicates my feelings about fairness and equity.

Rep: The problem is that some very similar institutions are paying radically dissimilar prices, and we want to normalize the pricing structure.

Librarian: And I have no problem with that, especially if you plan to normalize it by lowering the prices for some of your customers. But I’m guessing that isn’t your plan, because if it were, you wouldn’t be flying reps all over the country to explain it. No one would ask you to justify a price decrease.

Rep: Actually, the price will decrease for some customers—but you’re right, in your case the model results in a higher price. It’s a price that we feel more accurately reflects the true value of our product.

Librarian: But in reality, all that means is “We think we can get more money for our product than we’re currently getting.” No vendor or publisher thinks its product is overpriced, any more than I’m likely to think I’m overpaid. When you say you’re making the price more “fair” or more reflective of your product’s value, what you mean is that you’re raising it.

Rep: In your case, that’s true. But we’re not just arbitrarily raising the price of our existing product; the higher price also reflects significant investments we’ve made in improvements to our platform and infrastructure over the past few years. Surely you don’t object to us recouping the significant expense of product improvement.

Librarian: I don’t object in principle, but the problem is that there’s a real logical gap between investment and value. You can say what you’ve invested, but only your customers can say whether the investment resulted in additional value. What if you’ve improved your product in ways I don’t care about? What if your improvements actually annoy my patrons and staff? Is it fair that I have to pay for changes that are worth nothing to me? What I’d like to do is continue using the old version, at the old price—I don’t suppose that’s an option, is it?

Rep: No. The fact is, we’re not a high-margin company; we really do try to keep our costs low and our prices reasonable, and we can’t support two platforms at once. It would just be too expensive, and ultimately it would drive prices up further for everyone, including those who are perfectly happy with the new platform.

Librarian: OK, I can understand that. It doesn’t make me feel any better about paying more for a product that is no more valuable to me that it was last year, though.

Rep: But I think there’s something you’re forgetting: your subscriptions are cumulative. If our product is valuable to you at all, then it does grow in value every year—because the content grows every year. Since we host the content for you, that means our local costs grow every year as well. Do you expect us never to raise our prices?

Librarian: No—you’re right that it wouldn’t be reasonable to expect prices to stay completely level. But our materials budget was cut last year and is flat this year. We can argue all we want about whether and by how much prices “should” go up; the bottom line is that I have less money this year than last, and with inflation I’ll have even less next year. I also have fewer staff, which is why I can’t invest half a day’s work time in listening to you and your boss explain a pricing model that doesn’t ultimately matter to me. Would you please just send me the new pricing information so my staff and I can figure out how we’re going to deal with it?

Rep: OK, fine. I’m emailing you a document that summarizes the new model and shows your bottom-line price. You should get it in just a second.

Librarian: Yup, got it. [Quickly calculating…] Let’s see: it looks like your model will result in a 40% price increase for my library.

Rep: We realize that the new model will require some adjustment for you, so we’ve prepared a five-year “glide path.”  Your price will go up by a smaller percentage every year until you’ve arrived at the new model.

Librarian: “Glide path”? That’s not a glide path, it’s a mountain climb. The mountain may be terraced, but still.

Rep: I realize this is a challenge, but that’s the price that the model dictates.

Librarian: You keep referring to “the model” as if it were a tyrannical third party over which you have no control. What you call “the model” is really just the price, and the price is set entirely by your company. No one is forcing you to increase my library’s price by 40%.

Rep: Well, like I said, this is a price that levels the playing field amongst our customers and better reflects the value of our product. At the price we’re proposing, based on your historical usage patterns, each download will cost you about $2.50. That seems like a fair price and good value for money, doesn’t it?

Librarian: Actually, it does. Your journals are heavily used and in high demand here, and $2.50 per article is a good price.

Rep: So what’s the problem? If you’re getting a good product at a good price, why are we arguing?

Librarian: Because I can’t afford it. It may be a great deal and a valuable product, but that fact doesn’t make money magically appear in my budget. Value and affordability have no relationship to each other. You could offer me a nice four-bedroom house for $50,000 and that might be an amazing deal—but if I don’t have $50,000, it doesn’t matter.

Rep: But I bet you’ve got other subscriptions that offer much lower value than ours do, even at the higher price. Maybe you should cancel some of those to make room in your budget for our journals, which you just said are of high quality and in high demand.

Librarian: That might have been true five years ago, but it’s not true anymore. Due to budget cuts and price hikes like this one, our subscription list is actually shrinking every year, and there’s no longer anything we can cut without significantly hurting out users’ ability to do their research. We have a couple of Big Deals that involve a lot of waste, but we can’t cancel those because the individual titles we need from those publishers would cost us more than the package does.

Rep: Sounds like we’re at a stalemate.

Librarian: No, unfortunately there’s no such thing. If you insist on a 40% price increase, then we’ll have to cancel some of your journals. There’s just no other option. Some of our faculty will be furious, but at this point there’s no choice available to us that won’t make faculty furious.

Rep: We’d really like to come visit you and talk about this some more, maybe help you see why this price increase makes sense.

Librarian: How about this: you guys come and talk to the faculty members whose departments will be directly affected by the journal cancellations that you are making necessary?

Rep: <dial tone>

Librarian: Hello?

(This posting is also published in the February 2011 issue of Against the Grain.)

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About Rick Anderson

I'm Associate Dean for Scholarly Resources & Collections in the J. Willard Marriott Library at the University of Utah.

Discussion

19 thoughts on “Prices, Models, and Fairness: A (Partly) Imaginary Phone Conversation

  1. You make some excellent points through this dramatic scenario.

    Value, however, is a very abstract concept, which means that our willingness to pay a certain price is based on many heuristics. While you claim that it all boils down to the price, a fair price is determined by: 1) What you paid in prior years; 2) What other libraries are paying; and 3) what similar publishers are charging. When you argue that you cannot afford a 40% increase, you are really making a value comparison to last year and to the state of your overall budget.

    I fear that the push for transparent pricing models will only exacerbate tensions between libraries and publishers. If drama is what librarians want, this is undoubtedly the best way to create it.

    Posted by Phil Davis | Mar 3, 2011, 10:14 am
    • Hi, Phil —

      I hope I didn’t give the impression that I think “value” boils down to price. My intended point was simply that sellers cannot dictate the value of their products; only customers can say what the value of a product is. Nor do I agree that “fairness” can be reduced to a formula such as your propose: fairness is every bit as abstract as value, and ultimately I think it has no place in pricing negotiations. For either party to argue for “fairness” is ultimately to resort to assertion, not argument.

      When I argue that I can’t afford a 40% price increase, I’m not actually making a value or fairness assertion at all. What I’m saying is “there is not enough money in my budget for me to pay 40% more this year for your product than I did last year.” The standard publisher response is to say “cancel something else,” and that ‘s a completely understandable response. But it’s not a sustainable solution, unless we’re willing to accept its ultimate result: a single subscription to a single very expensive journal in every library (which would finally have to be canceled, because its price would eventually outstrip the library’s entire budget).

      Posted by Rick Anderson | Mar 3, 2011, 10:38 am
      • Rick, I think you do make a very explicit argument that it all boils down to price when you write:

        If the price is acceptable, then how you guys arrived at the price doesn’t matter that much. And if it’s not acceptable, then the model still doesn’t matter. Ultimately, all that matters is the price.

        So if you argue that you cannot afford a 40% increase, you are really stating that you value other parts of your budget enough that you are not willing to make room for a 40% increase on a single product. This is fine, but the argument comes out sounding like you have an accounting line for each product, determined in advance on the original price of the product. How you arrived at the original starting price becomes arbitrary.

        Posted by Phil Davis | Mar 3, 2011, 10:54 am
        • Phil, the line that you’re citing doesn’t address the issue of value at all; it addresses the functional irrelevance of models. I’m not saying that everything boils down to price, only that the attractiveness (for customers) of a model boils down to price. To put it another way: if the price is unsustainably high, then it doesn’t matter to me how innovative or elegant or simple or even “fair” the model is that produced it.

          When I argue that I “can’t afford” a 40% increase, obviously I’m not saying that the money isn’t there, somewhere else in the budget. What I’m saying is that I can’t take that much money out of another area of my budget without doing equal or greater damage to my patrons’ ability to do their work. If submitting to the proposed price increase will mean proportionally undermining my patrons’ research capabilities, then I characterize that price increase as unaffordable.

          Should a particular publisher care about that? Maybe not. Ultimately, I’m sure Nature is perfectly happy to see me cancel an essential Elsevier journal in order to make room for the price increase on an essential Nature title (and vice versa). But this isn’t about what pubishers want, and it isn’t even about what I want. It’s about what I can actually pay for with my budget, and about getting beyond such spurious issues as the virtue of particular models and “fairness.”

          Posted by Rick Anderson | Mar 3, 2011, 11:12 am
          • Rick, if you take such issues with “spurious” notions of models and fairness, I don’t see how you can argue with “sustainability.”

            Price, models, fairness, affordability, and sustainability are all value-laden. You must chose what values you hold dear as a librarian.

            Posted by Phil Davis | Mar 3, 2011, 11:35 am
    • In response to this:

      Rick, if you take such issues with “spurious” notions of models and fairness, I don’t see how you can argue with “sustainability.” Price, models, fairness, affordability, and sustainability are all value-laden. You must chose what values you hold dear as a librarian.

      No:

      Price is merely a number, and is value-neutral.

      Fairness is entirely value-laden (which is why arguing about “fairness” gets us nowhere).

      Affordability and sustainability, on the other hand, are objective criteria. If I have $10 to my name, then I can’t buy something for $12, regardless of how valuable I think it is (that’s affordability).

      Sustainability is the same issue extended over time: if my serials budget gets cut by 5% from year to year, then I can’t maintain the same number of journal subscriptions; if the journals’ prices are increasing from year to year, then I can maintain even fewer of them. Ultimately, the inevitable end result of that dynamic will be no subscriptions at all, because I’ll end up with a single very expensive journal and will have to cancel that one when the final price increase takes it out of the realm of objective affordability. In other words, affordability points to what I have sufficient money to buy right now; sustainability points to what I can continue to buy over time. The current market dynamic (decreasing library budgets and increasing subscription prices) is objectively unsustainable in the long run, no matter what we believe about value.

      Posted by Rick Anderson | Mar 3, 2011, 12:04 pm
  2. This conversation has a familiar ring to it. Indeed, for an institution being asked to shell out more of a shrinking budget, the rationale is unimportant. Publishers that approach our library with dramatic price increases make themselves easy targets for cuts.

    Posted by Chris bulock | Mar 3, 2011, 10:24 am
    • The problem, of course, is that not all journals can be cut with equal impunity. Copyright (of which, for the record, I am generally a fan) introduces a fundamental distortion into the information marketplace by giving sellers a complete monopoly: I don’t have the option of buying an Acme Scholarly Journal from a competitor, because there is no competing seller of Acme content. If Acme publishes a journal that my faculty consider essential to their work, and Acme insists on a 40% price increase, then I’m pretty much screwed: I can’t cancel it because it’s essential, but I can’t pay the increase because that will mean canceling something else that is also deemed essential. (In the old days I could cancel something that my faculty considered less essential — but those journals have now all been canceled.)

      This is, in fact, the pricing crisis that libraries have been warning publishers about since the 1970s. For decades publishers responded by saying “You keep telling us there’s a crisis, but you keep renewing your subscriptions.” Of course we did, while we could. Now we can’t, and things are getting ugly.

      Posted by Rick Anderson | Mar 3, 2011, 10:48 am
  3. Forgive me for being rude, but in my home country we have a saying – “graveyards are full of people who used to be considered irreplaceable”… . The same holds true for journal subscriptions, which have undergone very deep cuts in my home institution. If I need an article from a journal that my institute does not subscribe to, typically I e-mail the author, who is usually happy to e-mail me a pdf reprint. Worse case, I can buy the article as an individual download (although I can’t remember when I last had to do that, certainly not in the last 2-3 years). Bottom line, cancel those subscriptions! You will be amazed at how resourceful your faculty are after the initial grumbling dies down.

    Posted by Mike_F | Mar 3, 2011, 11:18 am
    • In some cases you’re right, Mike. In many other cases, unfortunately, you’re not. There’s a difficult balance to be struck here: to what degree should I take my patrons’ word for it when they say a title is “essential” (after all, they know their own needs better than I do), and to what degree should I try to convince them that it isn’t (after all, there may be alternatives of which they’re unaware)? Here’s one example of how difficult that balance can be: I had a very uncomfortable conversation a while back with an associate dean in our business school, who told me that they were having great difficulty recruiting faculty in a particular area because the library didn’t subscribe to a (very expensive) core journal in the field. Was that journal truly “essential”? If the lack of it was keeping him from hiring desired faculty, then probably so.

      Are there some journals that we assume to be “irrepleaceable” but in fact are not? Probably, and as prices continue to rise we’ll eventually figure out which ones they are. But the saying you quoted leaves unspoken an important truth: just because a person dies doesn’t mean s/he was, in fact, replaceable. It may be that the person in question left a genuinely unfillable hole upon his or her death. That possibility exists for journals as well.

      Posted by Rick Anderson | Mar 3, 2011, 11:40 am
      • I wonder if you could clarify why Mike’s suggestion doesn’t work in all cases? Why can faculty not simply consult the table of contents for each issue posted at the publisher’s site and then e-mail the author for a copy directly? Almost all major journal publishers now permit Green OA, so I don’t see anything in principle to prevent this practice Mike suggests from fulfilling faculty needs. After all, no faculty member needs the full content of every issue.

        Posted by Sandy Thatcher | Mar 5, 2011, 8:34 pm
        • Sorry for the delayed response, Sandy — I didn’t see your comment until today (3/25). In case a response is still of interest:

          The answer to your question is that while the solution you propose might work most of the time, it won’t work all the time. (Not all authors will be responsive, not all authors will still be alive, etc.) Nor will that solution generally satisfy the faculty whom the library exists to serve. If the dean finds his desired candidates turning down job offers because of the lack of a subscription, that’s a problem unlikely to be solved by telling the candidate “we don’t need a subscription; just contact the author when you want an article.”

          Posted by Rick Anderson | Mar 23, 2011, 5:29 pm
  4. You’ve nailed the dialogue, Rick, and the reality. At the end of the day, the idea that digital publishing is less expensive than print publishing may be a myth. In the databasing universe, publishers need to find revenue streams to support regular infusions of new content, significant technology upgrades, and everyday maintenance to archival platforms. I also understand the rationale behind “normalizing” institutional prices, which are often all over the map and then break the backs of publishers’ fulfillment systems.

    At the same time, the library market can only bear so much. Your librarian is absolutely correct to connect the dots between supply (in the persona of the publisher) and demand (the faculty researcher). The beleaguered librarian is, in this instance, simply a knife-wielding intermediary. By knocking at the institutional subs door too many times, certain publishers ensure that it will cave in. Those who reside at the top of the STM value chain may be the last to feel the rub. No one in the system is immune. – Alix

    Posted by Alix Vance | Mar 3, 2011, 5:37 pm
    • Thanks, Alix! And for the record, I think you’re right that digital publishing is no less expensive than print publishing — there are certain savings involved (materials, shipping, etc.) but also new costs (servers, archival maintenance, etc.). I share your sympathy for publishers who are in the difficult spot of trying to retool and even reengineer their businesses for a radically different environment. Unfortunately, sympathy is like value in that it does nothing to make money appear in my budget…

      Posted by Rick Anderson | Mar 3, 2011, 5:50 pm
  5. If I may ask a pointed question… Why is the library budget in question fixed or declining? If the cost per download is seen by the library as good value, but the overall cost is too high due to cuts, it suggests that the library has failed to make a case for the budget it needs to provide the service expected of it. The reasons why that is so, are no doubt complex, but surely a counter argument would run along the lines of economic harm to the institution from the loss of the funding for the needed resources. Is that the argument that is made? And if so, why isn’t it working?

    Posted by David Smith | Mar 3, 2011, 6:52 pm
    • David, your question assumes that strong arguments for funding will necessarily result in favorable funding decisions. The problem is that at most universities right now, there is not enough money available to support all reasonable funding requests. If a provost has to choose between giving the library more money and repairing a decrepit physics lab, which is the right choice? There will be strong arguments in favor of each, but you can’t spend the same dollar on both.

      Are some libraries failing to make a strong enough case for enhanced funding? Probably. But even those who are making a strong case are going to meet with mixed success in the current fiscal environment. (And even at the best of times, library budgets have never expanded at a rate that comes close to the 9% average price increase for science journals. That’s not because of poor case-making; it’s because _no_ segment of the university is going to get 9% annual budget increases.)

      Posted by Rick Anderson | Mar 3, 2011, 7:40 pm
    • I wonder if David has worked in a university and seen how funding priorities get set? I just had a professor at TCU explain to me how a crucial staff position in his department costing $50,000 a year was cut while the university has no problem shelling out $10 million for an upgrade to the football stadium! What happens in universities is not necessarily “rational.”

      Posted by Sandy Thatcher | Mar 5, 2011, 8:31 pm

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