Why do universities have to spend money on journals? Obviously this is a question in the light of the recent Elsevier boycott. Currently we do have an arXiv, maintained by academia and where researchers regularly upload parts of their work. In such a case,


Why do universities spend lots of money to publish in third-party journals?


The question especially applies to journals that operate with a rigorous profit motive. The subscription is very high, so wouldn't publishing in such journals affect the paper's citation count and deter the spread of knowledge about the work within academic circles?


Why should not universities collaborate to create free, open access, peer-reviewed journals?


Moreover, given the need to conserve paper, why should journals spend on printing research papers? Wouldn't an online version suffice, as most people use only local computer printouts anyway? In other words, why can't we have a Wikipedia-like system of sharing research knowledge, having properly established standards for such journals?
This is a really big question, which unfortunately has no simple answer.  Some short comments:

Universities have very little choice about subscribing to journals, as long they publish good papers, since faculty need access to those papers to do their research.  The solution has to start on the publishing side.

Collaborating to create free, open access, peer-reviewed journals is a fine idea, but either you need to convince universities to support this financially, or you need to recruit enormous numbers of dedicated volunteers.  (Whenever this topic comes up, someone is sure to point out that volunteers run some free, high-quality online journals.  Of course they do, but the question is how to recruit hundreds of times as many volunteers.)

Printing is a non-issue.  Everything is already available online, with printed copies only for those who want them.

In a mathematics context, see http://gowers.files.wordpress.com/2012/02/elsevierstatementfinal.pdf and http://arxiv.org/abs/1204.1351 for more details.