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Quantifying the Impacts of Digital Rights Management and E-Book Pricing on the E-Book Reader Market

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  • Jin-Hyuk Kim

    ()
    (Department of Economics, University of Colorado at Boulder)

  • Tin Cheuk Leung

    ()
    (Department of Economics, Chinese University of Hong Kong)

Abstract

The demand for electronic books (e-books) and the e-book readers are complementary. On the one hand, the emergence of e-book readers such as Amazon's Kindle has triggered the recent growth of the e-book market. On the other hand, several issues in the e-book market can affect the future of the e-book reader market. Considering this complementarity, this paper quantifies the impact of digital rights management (DRM) and discounted e-book pricing on the demand for e-book readers. We collect conjoint survey data to estimate a random coefficient demand model using a hierarchical Bayesian method. Our counterfactual experiments suggest two things. First, Kindle's and Nook's market shares would increase by dropping DRM. Consumer welfare would increase seven percent if all e-book readers dropped DRM. Second, an increase in e-book prices would increase iPad's market share at the expense of that of Kindle and Nook. Consumer welfare would decrease 6 to 10 percent if Kindle's and Nook's e-book prices went up by 50 percent.

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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 13-03.

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Length: 42 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:net:wpaper:1303

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Keywords: electronic book; demand estimation; DRM; agency model;

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