Amazon recently began a new service: providing an electronic version of books to its consumers after they purchase the physical books. This business practice provides consumers with an opportunity to reseller brand new books, which will influence publisher, retailers and consumers. Using a two-period model we discuss these impacts under two scenarios: monopoly and competition. We find that (1) Under monopoly, publisher sells high and retailer sells low in the equilibrium and consumers see an increase in their total surplus; (2) Under competition, retailers who provides such bundle will gain competitive advantage over the retailer who does not. One implication of our research is that bundling a new physical book with its digital version is a win-win strategy for all players.
Digitalization becomes the trend of publication for several years. Bill Gates predicted that "In the future, students' textbooks would be replaced by individual electronic tablets that would be cheap, multimedia, and connected to the Internet". According to IDPF (International Digital Publishing Forum), "e-Book publisher reported a 23% increase in e-Book revenues and a 20% increase in e-Book titles over 2004.
Keywords: Resale, E-book, retailer welfare, price competition
[...] We focus on the research setting of book industry in which retailer provides a bundle of both a brand new physical book with its electronic version.1 In particular, we want to find answers for the following questions: What is the impact on publishers, retailers and customers? What is the optimal pricing strategy for the retailers? What will happen under the competition between a retailer who provides an e-version and a retailer who does not? 2. Literature review Our research is closely related to the stream of online book industry literature. [...]
[...] As for the pricing strategy, the retailer can choose the optimal price based on estimate of parameters like values of physical and electronic books. One contribution of our paper is that we show that bundling a e-version with physical book can provide a competitive advantage for retailers in the market over those who do not have that service. As one of the first papers exploring resale of homogenous items because of digitalization, this study has several limitations that future research may address. [...]
[...] (See figure We analyze the impact of bundling a physical book with its e-version on publishers, retailers and consumers under two cases: Monopoly and Competition Digital book Publisher Retailer Customer New, Physical book New or Used, Physical book Figure Model under free E-version case Free E-Version scenario under monopoly Suppose there is still one publisher S and one monopolistic retailer R who sells a new physical book bundled with a free e-version. However, only consumers who purchase the new book from the retailer R have access to the e-version. [...]
[...] Similar to what Waldman (1997) and Hendel and Lizzeri (1999) argue on secondary market where buyers can sell used books after they purchase new books, rational consumers who purchase the bundle can sell the physical book as brand new books if they find that resale can increase their utility. From the perspective of retailers, such business practice brings the following benefits: Attract consumers with a lower valuation. Retailers are able to attract consumers whose valuation for the book is lower than the price of new physical book but higher than the difference between the price of physical book and resale cost. [...]
[...] We also assume that price for new book from R2 is less than the price for the bundle of new physical version and e-version pb > pb and resale price of used books through both retailers are the same: pu = pu . (See figure R R pb k ) pr 2 pu 2 pb Vb Vb + Ve 1 pu pr 1 pb Figure Consumer Segmentation by valuation under Competition 5 Proposition Under the competition scenario, the upper bound of price of new book p2 from retailer R2 who does not provide free e-version sells is p1 Ve . [...]
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