This is the first of what may become a longer series of blog posts addressing some of the economic issues surrounding Big Deals.
The so-called “Big Deal” is a whole collection subscription package offered by journal publishers to libraries whereby libraries can purchase a publisher’s entire collection of journals at a significant discount over the sum of individual journal subscriptions. These arrangements are frequently welcomed by libraries because of the subscription discount provided, while publishers identify these same discounts as a demonstration of their overall concern for the financial welfare of the scholarly communities they serve.
In a recent article, Liam Earney from JISC Collections summarised recent negotiations with publishers over Big Deal contracts, and observed:
“Some publishers who are approached by consortia for offsetting agreements express the view that they have to offer three levels of discount. First is the ‘discount’ they already offer on the collective price of journals as part of the big deal, second is the global price reduction on subscription costs they implement in order to fulfil their anti-double-dipping policies and, finally, they are now asked to implement a third local offset for those research-producing institutions faced with increased APC costs. Withdrawing any one of these will lead to protests from at least one segment of their customer base depending on that particular segment’s attitude or policies around gold OA, thus placing them between a rock and a hard place.” 
Given the prevalence of these types of arguments I thought it may be worth reiterating the basic economics of the pricing of bundles. The key message: by apparently providing discounts on the individual journal prices within a bundle of journals (or Big Deal) a publisher is able to increase the overall expenditure incurred by the library, tie the library into the Big Deal contract, and increase publisher profits.
This is most easily explained with a very simple example:
Let us consider a publisher with two journals – which I shall generically call Science and Arts.
Similarly, let’s divide Universities into those that concentrate in STEM disciplines, and those that concentrate in HSS disciplines.
STEM universities have more researchers interested in the journal Science than Arts, and so are prepared to pay $7500 to purchase a subscription to the journal Science but only $2500 to purchase a subscription to the journal Arts. Conversely, the HSS universities are prepared to pay $7500 for the journal Arts and only $2500 for the journal Science.
Question: What is the optimal (profit maximising) pricing policy for the publisher to adopt?
Clearly if the publisher prices each journal above $7500 – then they will make no sales at all. But if the subscription fee is above $2500 and not more that $7500, then all the STEM universities will purchase Science (but not Arts) and all the HSS universities will purchase Arts (but not Science) – so the publisher will sell a subscription for one journal to each university. In this situation the best the publisher can do is set the subscription price for both journals at $7500, and will thus achieve a total revenue of $7500 from each university.
Alternatively, charging a subscription price of $2500 for each journal will encourage all libraries to purchase both journals. But in this case the publisher will only realise a total revenue of $5000 from each library, and so will prefer to set the higher subscription charge.
If, however, the publisher – while maintaining the single journal subscription fee of $7500 – offers a special Big Deal rate of ‘only’ $10000 for BOTH journals, then all universities will opt to purchase the Big Deal (as this is the total amount they are prepared to pay for both journals). The publisher now achieves revenue of $10000 from each library.
Thus by offering libraries the Big Deal with a discount of 33⅓ % on the individual journal subscription charges the publisher has very effectively increased the revenue earned from each university from $7500 to $10000.
Of course – once all the libraries have opted for the Big Deal (and so none is purchasing an individual journal subscription) the publisher could increase the subscription price of individual journals above $7500 – so making them individually too expensive for libraries and effectively tying libraries into the Big Deal package – while simultaneously appearing to be even more magnanimous to the scholarly community with their discount, and without it having any impact whatsoever on overall publisher revenue.
So, let’s be a little wary of thanking publisher too heartily for the discounted prices they provide via their Big Deals, or of thinking that it is a particularly sharp rock or hard place between which they find themselves feathering their nest.
1. Earney, L., (2017). Offsetting and its discontents: challenges and opportunities of open access offsetting agreements. Insights. 30(1), pp.11–24. DOI:http://doi.org/10.1629/uksg.3454