In the Electronic Journal of Academic and Special Librarianship: The Business of Academic Publishing: A Strategic Analysis of the Academic Journal Publishing Industry and its Impact on the Future of Scholarly Publishing:
...This statement by Deutsche Bank is an astonishing comment on the profitability of the industry. The notion that Elsevier, and therefore the other commercial publishers, add "little value to the publishing process" and cannot justify the high profit margins is significant. This statement by Deutsche Bank, while aimed towards investors, reveals the skepticism of investment analysts regarding the value that Elsevier, and therefore other firms with similar business models, claim to add to the publishing process.
If the large publishers provide little value-added, what explains their apparently high profit margins and ability to consistently raise prices? The first element that may account for the large publisher's profits is the concentration of the industry. As noted, the top three publishers of scientific journals (Elsevier, Springer-Kluwer and Wiley-Blackwell) account for approximately 42% of all articles published. Although there are over 2,000 publishers of academic journals, no other publisher beyond the big three accounts for more than a 3% share of the journal market. Moreover, the big three control the most prestigious journals with the largest circulations.
Because of the oligopolistic structure of the industry, rivalry between publishers is low (at least among the big three). Rivalry is further attenuated because there is little direct competition between the individual journals produced by each publisher. This is due to the specialized character of academic journals which are targeted to specific academic disciplines thus each journal has its own distinct target audience. This is a form of product differentiation. Moreover, the publishers that own prestigious journals are able to take advantage of another form of differentiation since faculty and libraries will always seek out the most influential journal within any given discipline.
There is no more striking evidence of the power of the large academic publishers than the fact that two of the most important inputs to the production of a journal - the articles themselves and editorial review - are provided virtually free of charge to the publishers. As seen in the business model, faculties have strong incentives to produce articles and participate in editorial reviews, activities that are promoted both by the values of the profession and academic tenure and review procedures. Academic journals are the primary means for disseminating scholarly work and this fact places the journal publishers in a uniquely powerful position. Although they may not provide a great deal of value through their operational activities as illustrated by the Deutsche Bank analysis, they occupy a strategic position in the current business model by controlling the flow of scholarly exchange necessary to the process of knowledge creation. In the current model, faculty members are more dependent upon the publishers than the publishers are on faculty members. The dependency is increased by the fact that there are a relatively large number of faculty members seeking an outlet for their scholarly output compared to the number of journals available within any academic discipline....
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I take issue with the statement "there are a relatively large number of faculty members seeking an outlet for their scholarly output compared to the number of journals available within any academic discipline". I can only speak for my area (math/signal processing), but I am pretty sure that the same developments are happening in other academic disciplines.
Methods used by universities and grant awarding organisations, and university ranking organisations for assessment of academic research quality are increasingly turning to numerical metrics (number of publications, impact factor, citations, etc), and academics are naturally playing the game of maximizing their scores. Publication is no longer, as it was even just 50 years ago, about dissemination of research results to colleagues. Rather it is about producing as many articles in as high scoring journals as one can per year. A former research student of mine told me recently that, "Nowadays publication is not about dissemination of actual results as it was in your day, but about telling what you've been working on". I know of many people in my discipline who produce around 30 or more papers per year, many in so called "high impact factor" journals. Incidentally impact factors along with citations are very imperfect measures of real quality. Most of these papers have very little information content, but are cited by colleagues because we have to appear that we know the literature. The relatively few good papers are drowned in an ocean of dross. Companies like Elsevier have capitalized on this phenomenon. They produce journals that have "high impact factors" that academics publish in to obtain promotion and/or grants. Unfortunately this process is also having the effect of putting people who have played this game best, rather than the best researchers, into positions of power. They are the ones making judgements about funding of research and promotions of colleagues, and naturally they tend to judge in their own terms.
The drive for more outlets is not primarily because there are increasing numbers of people publishing papers, but because individuals are publishing more papers and want them to be in "reputable" journals. There are plenty of outlets - for example the various archives available on the web and the free electronic journals. The problem is that these are not yet regarded by academics as being sufficiently prestigeous.