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FIGURE D.1
UNIT COSTS IN FIFTY-EIGHT UNIVERSITY RESEARCH
LIBRARIES IN COMPARISON WITH WHOLESALE PRICE

INDEX, 1951-69

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Source: W. J. Baumol and M. Marcus, Economics of Academic Libraries,

1973

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material disseminated in the form of either electronic tapes and discs or video tapes and discs depending on the nature of the content. In this system both the library and some individuals would have the appropriate play-back equipment. One prototype here is a video disc system in which the video disc player has both addressing and "freeze" capabilities.

The second system would eliminate the distinct, loanable "volume" as we now know it. (This is in contrast to the type or disc system where a volume is one or more tapes or discs.) Such a system might involve the inputting of and storage of complete texts into a memory that is quickly and inexpensively searched either by the user himself or by the librarian as an intermediary. The recovered information can either be displayed on a CRT console or hard copy can be produced.

Neither of these two systems pose any difficulties -- conceptual or real -- for the optimal pricing rules described in our previous papers. In fact direct analogies exist for each of the concepts in those papers. The optimal prices depend on the costs of producing the information and the copies of it, the (price) elasticities of demand of each of the groups of information users for each of the products, and the crosselasticities of demand (or, hopefully, some more operational measure of the interrelationships of the demands).

In the first system one can expect to find a higher optimal price for those copies of the discs or tapes that are sold to libraries than for those sold to individuals. This is true, in general, if the elasticity of demand of the individual buyers is higher (in absolute terms ) than that of the institutional purchasers. Possibly more interesting is the conclusion of Ordover and Willig (1976] that the institutional price should be higher than the individual price if the average number of "potential buyers" is greater than one, no matter what the elasticities of demand may be. Here "potential buyers" are those members of purchasing institutions who would purchase their own copies if the institution switched from buying to not buying in response to an increase in the institutional price.

Also in this system, with discs or tapes, there will be an increase in economic efficiency if charges are levied for use of the library copies. This charge might vary depending on whether the use was inhouse with library-provided readers, consoles, etc. or if the use were external after the copy had been borrowed. The deciding factors would, of course, be the relative costs to the library of in-house vs. external use and, again, the elasticities of demand. The only factor that should lead one to decide against such user charges would be if the transactions costs of levying and enforcing such charges were high relative to the sums involved.

The second system -- the use of computer memory and peripheral devices to store the text and access it for each user -- is also amenable to the pricing systems we have described. In such a system much more

complex pricing arrangements are not only possible but are, to some extent, already in use. For example, the contracts between the bibliographic data base providers (e.g., Chemical Abstracts, Medlars, ERIC) and the on-line information system operators (e.g., Lockheed's DIALOG and SDC's Search) often involve payments that are based on (1) yearly basic charges, (2) the length of time users are connected to the data base, and (3) the number of citations given to the users. The monitoring of the usage and output is already quite sophisticated and is relatively inexpensive.

It is optimal from the point of view of economic welfare for the data base providers to be able to charge different prices to the systems operators rather than, for instance, those they might charge to a private research organization. For such price discrimination to continue, it is necessary that some restrictions be made on further resale by the original purchaser. These restrictions are currently part of the various contracts, but, if the number of systems and producers of the information were to grow, it is obvious that at some point it is more economical to replace the individual contracts with a more comprehensive system such as a copyright licensing organization.

From this we can conclude that the growth of computerized information systems will cause copyright protection of the information to be stored in such systems to become more desirable for two reasons. First economic welfare can be improved by reducing the need for individual contracts between each producer of information and each system operator. And second, the cost of monitoring usage to determine the proper royalty payments is low in a high-technology system which relies on computer searching.

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W. J. Baumol and M. Marcus, Economics of Academic Libraries,
Washington, D. C., American Council on Education, 1973.

Y. M. Braunstein and J. A. Ordover, "Economic Views of Copyright in Scientific and Technical Information Systems," New York University, 1976; excerpts are in "The Role of Transaction Costs in the Design of Royalty Pricing Schemes for STI," Appendix B, this report.

J. S. Hewitt, "The Impact of OCLC," American Libraries, May 1976.

F. Kilgour, et. al., "The Shared Cataloging System at the Ohio College Library Center," Journal of Library Automation, vol. 5, No. 3 (Sept. 1972).

J. A. Ordover and R. D. Willig, "On the Optimal Provision of Journals Qua Excludable Public Goods," Appendix C, this report.

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