Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
E-Books: A Tale of Digital Disruption
Journal of Economic Perspectives
vol. 29,
no. 3, Summer 2015
(pp. 165–84)
(Complimentary)
Abstract
E-book sales surged after Amazon introduced the Kindle e-reader at the end of 2007 and accounted for about one quarter of all trade book sales by the end of 2013. Amazon's aggressive (low) pricing of e-books led to allegations that e-books were bankrupting brick and mortar book booksellers. Amazon's commanding position as a bookseller also raises concerns about monopoly power, and publishers are concerned about Amazon's power to displace them in the book value chain. I find little evidence that e-books are primarily responsible for the decline of independent booksellers. I also conclude that entry barriers are not sufficient to allow Amazon to set monopoly prices. Publishers are at risk from Amazon's monopsony (buyer) power and so sought "agency" pricing in an effort to raise the price of ebooks, promote retail competition, and reduce Amazon's influence as an e-retailer. (In the agency pricing model, the publisher specifies the retail price with a commission for the retailer. In a traditional, "wholesale" pricing model, publishers sell a book to retailers at a wholesale price and retailers set the retail price.) Although agency pricing was challenged by the Department of Justice, it may yet prevail in some form as an equilibrium pricing model for e-book sales.Citation
Gilbert, Richard J. 2015. "E-Books: A Tale of Digital Disruption." Journal of Economic Perspectives, 29 (3): 165–84. DOI: 10.1257/jep.29.3.165Additional Materials
JEL Classification
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L12 Monopoly; Monopolization Strategies
- L13 Oligopoly and Other Imperfect Markets
- L81 Retail and Wholesale Trade; e-Commerce
- L82 Entertainment; Media
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