An Analysis of Pricing Models in the Electronic Book Market

Lin, Hongwei; Fan, Ming

doi:10.25300/misq/2014/38.4.04

Cited by 142 publications

(74 citation statements)

References 17 publications

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“…If (a) two channels are available simultaneously and (b) the consumer's valuation exceeds both thresholds, then the consumer will choose the item from the channel with higher consumer surplus (similar to Chiang et al. and Hao and Fan ). The consumer surplus from purchasing the traditional goods is V − P T while the consumer surplus from the digital goods is θV − P D .…”

Section: Notation and Modelmentioning

confidence: 99%

Strategic Analysis of the Agency Model for Digital Goods

Tan

Carrillo

2017

Production and Operations Management

248

101

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The introduction of digital goods in the media industry has gained a considerable amount of positive press due to superior features such as increased accessibility and portability. However, the distribution of these digital goods in conjunction with their physical analogs (i.e., printed books) has been operationally problematic for media supply chains. Specifically, the types of contracts utilized to distribute these goods such as agency models have come under fire in the press. A high profile case brought by the Department of Justice (DOJ) against Apple exemplifies this debate as the DOJ claims that the agency model utilized by Apple caused higher prices and decreased consumer surplus. We create and analyze a model of vertically differentiated goods to compare and contrast the agency model with the wholesale model. We ascertain that both (a) the revenue‐sharing structure and (b) the upstream publisher's control over the price contribute to the benefits of the agency model. We consider a variation of this model which shows that if the retailer utilizes a “fixed price” model, then he suffers from a short‐term loss in profit, possibly to garner additional market share. We also investigate an incentive alignment condition for the agency model which assures that the retailer and the publisher will together commit to selling digital goods alongside physical goods in the supply chain. Finally, we analyze an extension of the original model which incorporates horizontal differentiation in addition to vertical differentiation and shows that in most cases, the horizontal differentiation does not alter our original results that the agency model outperforms the wholesale model.

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Section: Notation and Modelmentioning

confidence: 99%

Strategic Analysis of the Agency Model for Digital Goods

Tan

Carrillo

2017

Production and Operations Management

248

101

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“…Therefore, a key distinction between the wholesale contract and the agency contract is whether the firm or the online platform has the control to set the retail price (Tan and Carrillo ). Similar to Hao and Fan (), for each bundle (under bundling) or core product (under add‐on pricing) sold under the agency contract, the platform takes

β

proportion of the revenue while the upstream firm gets the remaining

1 - β

proportion.

β

is referred to as the commission rate in this study .…”

Section: The Modelmentioning

confidence: 99%

How Add‐on Pricing Interacts with Distribution Contracts

Geng

Tan

Wei

2018

Production and Operations Management

181

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With the rise of the Internet economy, an increasing number of firms are offering their core products through online platforms, but retail add‐ons directly to consumers. Meanwhile, many online platforms have also started adopting the agency (model) contract, where the upstream firms decide the retail prices of products while the downstream platforms take a predetermined cut from each sale. This study examines the interaction between an upstream firm's add‐on strategy and a downstream online platform's distribution contract choice. We find that such a firm prefers bundling the add‐on and the core product together under the wholesale contract, but prefers retailing the add‐on separately under the agency contract. Our research thus is the first to suggest that the distribution contract can critically affect a firm's choice between add‐on pricing and bundling. On the platform side, we show that a higher commission rate does not always result in a higher profit for the platform under the agency contract. We further identify two conditions under which the platform prefers the agency contract over the wholesale contract: The commission rate for the platform cannot be too low, and the market potential of the add‐on cannot be too large. For the overall channel, we show that the interaction between add‐on pricing and distribution contracts leads to sub‐optimal channel performance. That said, it is possible for both the firm and the platform to obtain higher profits under the agency contract than under the wholesale contract. Finally, we also demonstrate the robustness of our findings under several alternative model specifications.

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“…First, solving q e = 0 for α with the optimal prices from (5), (6), and (7), I obtainᾱ above which the market for e-book disappears:…”

Section: Equilibrium and Resultsmentioning

confidence: 99%

“…In other words, the level of substitutability σ plays little role in the optimal prices, and the prices become what one can expect from any ordinary wholesaling model. 6 That is because, in this pure-wholesaling model, though the two products are substitutable, there is no competition between the publisher and the retailer since the retailer sets both prices.…”

Section: Comparison With "Pure-wholesaling"mentioning

confidence: 99%

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When Old Meets New: Wholesale and Agency Models in the Market for Printed and Electronic Books

Kim¹

2018

Proceedings of the 51st Hawaii International Conference on System Sciences

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In this work, I seek explanations to some of the curious phenomena reported in the book market by focusing on its two important characteristics: (i) the substitutability between the printed-and the e-book versions, and (ii) the mixture of the "old" wholesaling arrangement for printedbook versions and the "new" agency model for e-book versions. In this exploration, using a game theoretic model, I find that an increase in the agency fee that the retailer collects in the e-book market can depress the vitality of the market, which not only ends up hurting the publisher, but also the retailer. This raises a caution that retailers should be moderate in their efforts to get a bigger cut in the agency arrangement. I also find that some of the perplexing phenomena observed in the real world may be due to an excessively large agency fee in the e-book market, and that reducing this fee can lead to a win-win outcome for both the publisher and the retailer.

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An Analysis of Pricing Models in the Electronic Book Market

Cited by 142 publications

References 17 publications

Strategic Analysis of the Agency Model for Digital Goods

Strategic Analysis of the Agency Model for Digital Goods

How Add‐on Pricing Interacts with Distribution Contracts

When Old Meets New: Wholesale and Agency Models in the Market for Printed and Electronic Books

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