INCUMBENT STRATEGY

Incumbent Strategy



Incumbent Strategy

Introduction

In this paper we discuss business strategies of incumbent players. First, we study the strategy of 'tying'. Then, we move on to strategies to create mass. Enhanced opportunities for price discrimination are discussed next, including the increased countervailing opportunities to neutralize price discrimination. Superior information about demand and standards of publishing may further strengthen incumbent publishers' position. Finally, we reformulate many of these strategies as strategies that raise entry barriers.

Discussion

Network effects are even more abundant in electronic publishing than in traditional publishing). Extensive cross-reference links between articles in different journals enlarge the value of the set of journals, benefiting publishers with many related titles in their portfolio (Milgrom, P. and J. Roberts, 1982). Recently, twelve publishers, commercial and non-commercial have announced that they will provide such a reference-service. Improved search opportunities further increase the value of a large portfolio (Noll, R. and W.E. Steinmueller, 1992).

Moreover, some large commercial publishers start to favour contracts with consortia of libraries rather than with individual libraries (Prior, 1999). In particular, these consortia include libraries that traditionally did not subscribe to scientific journals, e.g. schools for higher vocational education.(19) In this way, publishers extend the consumer base and reduce break-even prices, even though these consumers clearly pay far lower rates than the traditional ones. As a consequence, barriers to entry become higher, since potential entrants lack such an installed consumer base. Also, publishers further counter the threat of cancellation of individual journal titles, since there will always be at least one consortium member that insists on access to the journal. Hence, this strategy could also be interpreted as an attempt to leverage market power with respect to a specific library to all members of the consortium (Meadows, J. , 1993).



Traditional publishers of scientific journals do not have much information about demand. They do know the number of individual and institutional subscriptions, and they probably have an educated guess about the number of students and researchers that have access to the journal through a specific library (Milgrom, P. and J. Roberts, 1982). But a publisher does not know the number of students and researchers at a given university that are working in the field served by a journal, nor does he know the number of times the journal has effectively been consulted or the number of consults that have been fruitful to those readers. The intricate process within universities that leads to a decision about an institutional subscription further blurs the revelation of the true valuation derived from the subscription (Fisher, J.F. , 1995).

It is important to note that the nature of a subscription - a right of access instead of ownership, see section 6.4 - is consistent with these types of price discrimination. Indeed, publishers need to record readers' behaviour, hence consumers must be invited to visit publisher's database rather than a cd-rom at the library (Milgrom, P. and J. Roberts, 1982). Furthermore, the de-bundling of ownership into limited-period access to current and archived (sets of) articles and journals brings ...