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Organizing Distribution Channels for Information Goods on the Internet

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Author Info

  • Rajiv Dewan

    ()
    (William E. Simon School of Business Administration, University of Rochester, Rochester, New York 14627)

  • Marshall Freimer

    ()
    (William E. Simon School of Business Administration, University of Rochester, Rochester, New York 14627)

  • Abraham Seidmann

    ()
    (William E. Simon School of Business Administration, University of Rochester, Rochester, New York 14627)

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    Abstract

    Rapid technological developments and deregulation of the telecommunications industry have changed the way in which content providers distribute and price their goods and services. Instead of selling a bundle of content and access through proprietary networks, these firms are shifting their distribution channels to the Internet. In this new setting, the content and Internet service providers find themselves in a relationship that is simultaneously cooperative and competitive. We find that proprietary content providers prefer the Internet channels to direct channels only if the access market is sufficiently competitive. Furthermore, maintaining a direct channel in addition to the Internet channels changes the equilibrium enough that the proprietary content providers prefer having the Internet channels, regardless of the level of competition in the access market. Telecommunications technology developments uniformly increase content providers' profit. On the other hand, the technology impact on Internet service provider profits is nonmonotonic: Their profits may increase or decrease as a result of lower telecommunication costs. While initially the ISP profit increases as more customers are drawn to the Internet, it eventually decreases as the spatial competition becomes more intense. We also show that proprietary content providers should benefit from having some free content available at the Internet service providers' sites to induce more customers to join the Internet.

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    File URL: http://dx.doi.org/10.1287/mnsc.46.4.483.12053
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 46 (2000)
    Issue (Month): 4 (April)
    Pages: 483-495

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    Handle: RePEc:inm:ormnsc:v:46:y:2000:i:4:p:483-495

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    Web page: http://www.informs.org/
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    Related research

    Keywords: electronic commerce; electronic publishing; digital content; information goods; internet service providers (ISP); pricing content; industrial organization; spatial competition; industry structure;

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    Cited by:
    1. Slawomir Czetwertynski, 2012. "Peer production on the Internet as an example of global disintegration of production process," Ekonomia i Prawo, Uniwersytet Mikolaja Kopernika, vol. 11(4), pages 47-60, December.
    2. Hua, Guowei & Cheng, T.C.E. & Wang, Shouyang, 2011. "Electronic books: To "E" or not to "E"? A strategic analysis of distribution channel choices of publishers," International Journal of Production Economics, Elsevier, vol. 129(2), pages 338-346, February.
    3. repec:tru:umkeip:2012:v4:p:47-60 is not listed on IDEAS
    4. Gilbert, Stephen M. & Cvsa, Viswanath, 2003. "Strategic commitment to price to stimulate downstream innovation in a supply chain," European Journal of Operational Research, Elsevier, vol. 150(3), pages 617-639, November.
    5. repec:cpn:umkeip:2012:v4:p:47-60 is not listed on IDEAS

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