Simulation model for journal subscription by libraries

In the context of empirical work on the determinants of journal prices by several authors, the present article considers a simulation model of the evolution of library subscriptions when some costs increase for exogenous reasons. Journal costs are thought to consist of “first‐copy costs” and “additional copy costs”; when costs rise, subscription prices are increased by publishers and some libraries, being faced with fixed budgets, cancel some subscriptions. Publishers then find that the price charged is not correct and increase subscription prices again. This iterative process ultimately terminates in a new equilibrium that is characterized by significant erosion of total subscriptions. In one variant of the model, publishers may own more than one journal, and if they do, they realize economies of scope. The effect of various parameters on the final equilibrium is considered. The percentage of costs accounted for by first‐copy costs has no significant influence, but the profit made by publishers does: The higher the profit that publishers attempt to maintain, the lower is the erosion of subscriptions. A key element in the process is the algorithm employed by libraries to decide which journal subscriptions to cancel; when they cancel on the basis of the cost of the journal or the importance of the journal, many more journals go entirely out of business than when cancellation is essentially random. The final conclusion is that while the precise outcome depends on the parameters of the model, the erosion in subscriptions can be extremely severe. © 1996 John Wiley & Sons, Inc.