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Mathematical Problems in Engineering
Volume 2013 (2013), Article ID 369214, 14 pages
http://dx.doi.org/10.1155/2013/369214
Research Article

Pricing Models of e-Books When Competing with p-Books

Yan Li1,2 and Nan Liu1

1School of Management, Zhejiang University, Hangzhou 310058, China
2School of Business, Shandong University at Weihai, Weihai 264209, China

Received 17 April 2013; Revised 28 June 2013; Accepted 28 June 2013

Academic Editor: Matjaz Perc

Copyright © 2013 Yan Li and Nan Liu. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

With the rise in popularity of e-books, there is a growing need to reexamine the pricing strategy in the e-book supply chain. In this paper, we study two forms of pricing models widely used in the book industry: wholesale and agency pricing models. We first assume a stylized deterministic demand model in which the demand depends on the price, the degree of substitution, and the overall market potential. Subsequently, we employ the game theory to determine the price equilibriums and profit distribution under different pricing models. Finally, we explore the behavior of the publisher and the retailer under different preferences and degrees of substitution through a computational study. Our findings indicate that the e-book price will be lower under the agency pricing model than under the wholesale pricing model, which is counterintuitive. The publishers have higher incentives to adopt the agency pricing model than the wholesale pricing model. The agency pricing model benefits the whole system and can provide readers with books at lower prices. The degree of substitution between the two forms of books and the readers’ preference toward e-book will affect the books’ price and the profit distribution between the publisher and the retailers.