What's Fair About Confidential Pricing?

The latest version of the Nature license has generated another round of discussion about the pros and cons of confidentiality clauses (see Section 8.5 of the Terms for the offending passage).   The topic pops up from time to time on liblicense-l, and the positions of the disputants are pretty well staked out.   What caught my attention in particular this time was Sally Morris's comment that "making the price actually negotiated would be most unfair to the vendor, wouldn't it?"

I'm generally sceptical when people start talking about what's fair or not.  Librarians do this all the time, complaining that it is unfair for Elsevier (for example) to charge the prices that they do.  I've never been able to figure out how "fairness" plays into this.  Mostly it seems to me that when librarians complain about "unfair pricing" they mean "prices that I don't want to pay."   I'm sympathetic to the frustration of the librarians, but I don't see what is unfair about the pricing.

I feel similarly about Sally's comment -- I can understand why publishers/vendors think it may be to their advantage to keep the terms of negotiated agreements confidential.  They would like all of their customers to believe that they're getting the best possible deal, and if I find out that the university down the road appears to have gotten better pricing, that's going to make me push harder on my end (or make me resentful if I've already sealed my deal).    So it could be that more transparency about pricing would make negotiations more difficult for publishers in some circumstances.  But why is that unfair?

In the liblicense discussions, several issues seem to get muddled together -- differential pricing, negotiated pricing, and confidentiality.  Some of the proponents of confidentiality argue that without it, differential and negotiated pricing would not be possible (to the detriment of the publisher), and yet that's clearly not the case.  Many publishers use tiered pricing based on fte or type of institution and publish those prices.

It may be more of an issue with negotiated pricing, but again, I don't see this as a matter of "fairness".     It would require publishers to be more consistent, perhaps, with the elements that they use in determining a negotiated price.  It could make them less willing, on occasion, to drop the price as far as they might for a particular customer because they're leery of setting a precedent.  It might require them to spend more time explaining why one customer got a deal that they're not willing to give you.   It could lead some publishers to give up negotiated pricing altogether and rely on various differential formulas.

I don't expect publishers who rely on negotiated pricing to bend much on confidentiality as long as they believe it is in their best interest.  But it's a business decision.  It's got nothing to do with fairness.

Comments

[William]

Good post. What does "fair" have to do with it?

I questioned Morris on this. She replied that every customer wants a good deal and questioned how this would work if negotiations weren't private.

In other words, she didn't answer the question.

[David Rothman]

Reading the part of this post about fairness" in terms of Elsevier's pricing brought to mind this recent article from the JMLA:
http://www.pubmedcentral.nih.gov/articlerender.fcgi?tool=pubmed&pubmedid=16888657

In particular, this paragraph:

"Global science, technology, and medicine (STM) publishing is a $7 billion industry, and, in 2002, scientific journals were the fastest-growing media subsector of the prior 15 years [9]. In recent years, commercial publisher profits have averaged in the 20% to 40% range [10, 11]. As part of a multibillion dollar industry, scholarly publishing corporations are motivated by profits and stockholder interests first. Reed Elsevier, one of the leading commercial STM publishers, had an operating margin of approximately 26% in 1997 [12], and a 2002 Morgan Stanley report on STM publishing listed a profit margin of 37% for Elsevier's core titles [9, 13]."

"Fairness" isn't the right term to use to discuss such things, but this does seem to me like an extraordinarily high profit margin.

[T Scott]

But how does one define "extraordinarily high"? A quick look at Yahoo Financial's Stock Screener report lists 200 companies with margins greater than 20%. A few of the more recognizable (to me, at least) include:

Intercontinental Hotels 48%
Verisign 44%
Anadarko Petroleum 37.5%
US Bancorp 36.2%
Citigroup 31.6%
Texas Instruments 28.9%

Personally I would rather that the money that goes towards Elsevier's profits be plowed back into the scholarly communication enterprise, but we operate in a capitalist economy, where Elsevier's margins are consistent with successful companies in other sectors. This may be an argument for promoting radical change in scholarly communication, but under the current system, Elsevier is merely doing what successful companies do. To be consistent, librarians who want to argue that Elsevier is not entitled to those levels of profit margin would need to apply that same argument across other sectors of the economy.

[William]

There is nothing wrong with Reed Elsevier turning a healthy profit. (Their investors probably encourage it.)
http://www.reed-elsevier.com/index.cfm?articleid=1671

There is nothing wrong with Reed Elsevier spending $3 million last year (and more than $15 million from 1998 through 2005) to lobby the U.S. government.
http://www.timesonline.co.uk/article/0,,11069-2000869,00.html

There is nothing legally wrong with Reed Elsevier's ties to the arms industry.
http://www.reed-elsevier.com/index.cfm?articleid=1750
(See p. 21)

There is nothing wrong with the Reed Elsevier Inc. Political Action Committee.
http://herndon1.sdrdc.com/cgi-bin/fecimg/?C00345793

As you say, Reed Elsevier is merely doing what successful companies do. And, as you say, this may be an argument for promoting change in scholarly communication.

[MarkD]

Any economist will tell you that in order for the economy to work in an efficient manner there must be transparency of information inputs. This principle is the corner stone of ‘efficient market’ theory.

One should be dubious of contracts that call for opaque prices. You are all librarians; is it not a tenant of your profession to provide information? Opaque prices are a tool of monopolists and monopsonists. Transparency leads to better decision making and, ultimately, better pricing for all. I am with Rick Anderson on this one – pricing information should be free and readily available.

[Marcus]

I'm with Mark D; sunshine is always better.

But it is true that arguing about whether profit margins are too big only goes so far. If I was the chairman of Elsevier, that margin could never be big enough.

So the best for open access is philosophical, not financial. In short: Scholarship is for the world's benefit, and should be created *and* disseminated by scholars. We can debate the truth of these claims endlessly, without ever referring to a profit margin.