An Analysis of Pricing Models in the Electronic Book Market

Author List: Hao, Lin; Fan, Ming;

MIS Quarterly, 2014, Volume 38, Issue 4, Page 1017-1032.

In this paper, we develop a game theoretic model to study the pricing of e-books and e-readers under two pricing models: wholesale and agency. We analyze pricing strategies for a publisher and a retailer. We identify the complementary relationship between e-books and e-readers as the main reason for the retailer to set a low e-book price in the wholesale model. Comparing the wholesale and the agency models, we find, in a wide range of market conditions, the price for e-book readers is lower in the agency model, leading to a higher e-book market share. However, a higher e-book price in the agency model lowers e-book consumption. Overall social welfare is lower in the agency model than in the wholesale model. While total consumer surplus is slightly higher in the agency model, largely because of a lower e-reader price, business profit is lower. The publisher, surprisingly, is worse off under the agency model.

Keywords: Electronic book; e-reader; pricing; agency model; wholesale model

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#5	0.432	consumer consumers model optimal welfare price market pricing equilibrium surplus different higher results strategy quality cost lower competition firm paper
#268	0.262	arguments retailers manufacturers retailer internet claim manufacturer consumer argumentation referral agency store third-party upstream argument wholesale rely samples electronic plus
#191	0.126	model models process analysis paper management support used environment decision provides based develop use using help literature mathematical presented formulation
#182	0.087	percent sales average economic growth increasing total using number million percentage evidence analyze approximately does business flow annual book daily