E-Book Sales Fall After New Amazon Contracts
by: Jeffrey A. Trachtenberg
Sep 04, 2015
Click here to view the full article on WSJ.com
TOPICS: Contracts, Pricing
SUMMARY: E-book revenue is falling, and some people in the publishing industry say it is partly because of the higher prices that have resulted from new contracts negotiated with Amazon.
CLASSROOM APPLICATION: Students can examine the relationship between the pricing model used in setting retail book prices and the quantity demanded of books and book revenues.
QUESTIONS:
1. (Introductory) What is the effect of an increase in the retail prices of e-books on the quantity demanded of e-books? What is the effect of an increase in the retail prices of e-books on the quantity demanded of hardcover books?
2. (Advanced) Are hardcover books economic substitutes for e-books? Is it possible that a decrease in the price of e-books would result in a decrease in the quantity of hardcover books demanded?
3. (Advanced) Describe agency pricing and the wholesale model for pricing. Are publishers necessarily made better off in moving from the wholesale model to agency pricing?
4. (Advanced) An increase in e-book prices associated with a shift from the wholesale model to agency pricing results in a decrease in retail e-book revenues. Is it possible that the profits of publishers could increase by this shift in pricing policy and resultant decrease in retail e-book revenues? Consider two issues: the publishers' shares of e-book revenues and the sales and revenues from hardcover books.
Reviewed By: James Dearden, Lehigh University
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