The personal success of an academic is dependent on participation in journals (# of publications, and # of peer reviews provided for free). Academics publish or perish, which gives journals a captive audience and produces a horribly inefficient market for research. Most people are astonished when explained in simple terms, but consider this: academics produce the raw materials and conduct rigorous quality control all for free, but then they buy back the results of their work at a vastly inflated price. Could this happen in any other industry?
Meanwhile, the government is conned into this "triple pay" system:
A 2005 Deutsche Bank report referred to it as a “bizarre” “triple-pay” system, in which “the state funds most research, pays the salaries of most of those checking the quality of research, and then buys most of the published product”.
The major publishers' profit margins are off the charts. By profit margin, publishers do better business than Google with >30% profit margins (compared to Google's average Operating Margin of 25% in from 2011-2021 [more details, with easy return link]), netting multi-billion dollar profits. Sure Google's profits are ~100x larger, but these margins are very high, and indicative of a misaligned market.
For example, Reed-Elsevier’s profit reached more than US $2 billion in 2012 and 2013, thanks to a profit margin of nearly 40% for its Scientific, Technical & Medical Division. Similar profit margins were obtained by Springer Science+BusinessMedia6in 2012 (35.0%), in 2013 by the Scientific, Technical, Medical and Scholarly of John Wiley & Sons7(28.3%), and Taylor & Francis (35.7%).
These very high profit margins are due to the peculiar economics of scholarly publishing, in which authors provide their goods without financial compensation, while consumers (readers) are isolated from the purchase. Lariviere et al. (2015) [PDF]
Why so profitable? Articles are non-substitutable goods; each paper is unique and not substitutable for another journal's article. Despite many similar journals there's no competition that would enable a market dynamic. Rather, they're complimentary goods, requiring libraries to pay for each journal.
Moreover, instead of competition journals collude to
Costs to publishers.
Note prestigious journals cost thousands of dollars to publish in, for roughly the same amount of work. This is a signal of price gouging. Although they could have higher quality people who demand higher paychecks, so maybe it's reasonable for world class quality.