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ABSTRACT
Digital forms of content have provided online retailers new ways of enhancing other business opportunities. E-book vendors such as Amazon introduced a fourteen-day lending program for its Kindle-linked e-books, banking on the e-book lending program to increase sales to consumers who appreciate the added utility from the new lending options. The benefits of such an e-book lending strategy can become significant as the number of e-book owners reaches a critical mass, creating a network effect. However, the strategy may involve risk because there is also the possibility of cannibalization of retailers’ print book. We investigate, in both monopolistic and duopolistic competition settings, whether and how an online retailer can benefit from introducing an e-book lending program and its effect on their pricing strategy and cannibalization. We also examine whether sequential release of print books and e-books in monopolistic settings will affect retailer’s revenue. Our study finds that in a monopoly setting, the retailer should implement the e-book lending strategy when the condition of network effect is satisfied. Our findings also suggest that retailers can use release time to minimize cannibalization in the case of sequential release. In addition, the e-book lending option benefits the retailer in a duopoly setting only when one retailer offers such a program; otherwise, the better-known retailer benefits more. Theoretical and practical implications for the management of different formats of content in various competition markets to sustain and expand business opportunities are discussed.
Supplemental Material
Supplemental data for this article can be found on the publisher’s website at 10.1080/10864415.2016.1319214
Notes
1. http://www.digitalbookworld.com/2016/ebook-sales-declined-in-2015-digital-audio-continued-growth/. AAP does not provide e-book sales data for 2016 whole year so far.
5. Here we assume that the decay rate of the print book remains stable in both periods. This assumption helps simplify our model. However, if we assume that the print books’ demand will have a different decay rate when e-books are available in the market, we get similar results.
Additional information
Notes on contributors
Li Chen
LI CHEN ([email protected]) is an assistant professor of management in the College of Business and Economics at Fayetteville State University. He received his Ph.D. from the University of Connecticut. His research interests include IT innovation, preference markets, sponsored online cocreation communities, information goods and e-commerce, and business integration. His research examines how companies use IT-based platforms in evaluating emerging technologies, optimal strategies for business integration, and the competitive landscape facing digital goods retailers. His work has been published in the Journal of Management Information Systems, Decision Support Systems, IEEE Transactions on Engineering Management, and other journals, and in various conference proceedings, such as Americas Conference on Information Systems, the Workshop of Electronic Business, and the Annual Meeting of Decision Science Institute.
Ruth C. King
RUTH C. KING ([email protected]; corresponding author) is a professor of management information systems in the College of Business and Economics at Fayetteville State University. She earned her Ph.D. from the University of Texas at Austin. Previously, she has served on the faculty of the University of Pittsburgh, University of Illinois at Urbana-Champaign, and University of North Carolina at Greensboro. Her research interests include IT governance and strategy, e-commerce, IS development, and IT human capital management. She has published over seventy papers in premium journals, including Information Systems Research, Journal of Management Information Systems, Decision Sciences, Communications of the ACM, and International Journal of Electronic Commerce, and in proceedings of international conferences.