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An Analysis of Pricing Models in the Electronic Book Market

MIS Quarterly, Forthcoming

41 Pages Posted: 6 Jan 2014

See all articles by Lin Hao

Lin Hao

Fordham University - Gabelli School of Business

Ming Fan

University of Washington - Michael G. Foster School of Business

Date Written: January 5, 2014

Abstract

In this paper, we develop a game theoretic model to study the pricing of e-books and e-readers under two pricing models: the wholesale and the agency models. We analyze pricing strategies for a publisher and a retailer. We identify the complementary relationship between e-books and e-reader 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

Suggested Citation

Hao, Lin and Fan, Ming, An Analysis of Pricing Models in the Electronic Book Market (January 5, 2014). MIS Quarterly, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2374950

Lin Hao (Contact Author)

Fordham University - Gabelli School of Business ( email )

140 West 62nd Street
New York, NY 10023
United States

Ming Fan

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

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