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Organizing Distribution Channels for Information Goods on the Internet

Author

Listed:
  • 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)

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.

Suggested Citation

  • Rajiv Dewan & Marshall Freimer & Abraham Seidmann, 2000. "Organizing Distribution Channels for Information Goods on the Internet," Management Science, INFORMS, vol. 46(4), pages 483-495, April.
  • Handle: RePEc:inm:ormnsc:v:46:y:2000:i:4:p:483-495
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    File URL: http://dx.doi.org/10.1287/mnsc.46.4.483.12053
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    References listed on IDEAS

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    1. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    2. J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December.
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    Citations

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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. Kartik Hosanagar & Ramayya Krishnan & John Chuang & Vidyanand Choudhary, 2005. "Pricing and Resource Allocation in Caching Services with Multiple Levels of Quality of Service," Management Science, INFORMS, pages 1844-1859.
    3. Li Chen, 2016. "Selling or Renting: Competition of Electronic Book Retailers," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 6(5), pages 1-2.
    4. repec:cpn:umkeip:2012:v4:p:47-60 is not listed on IDEAS
    5. repec:eee:ejores:v:264:y:2018:i:3:p:1074-1091 is not listed on IDEAS
    6. Sanjay Jain & P. K. Kannan, 2002. "Pricing of Information Products on Online Servers: Issues, Models, and Analysis," Management Science, INFORMS, pages 1123-1142.
    7. Kartik Hosanagar & John Chuang & Ramayya Krishnan & Michael D. Smith, 2008. "Service Adoption and Pricing of Content Delivery Network (CDN) Services," Management Science, INFORMS, pages 1579-1593.
    8. Rajiv D. Banker & Robert J. Kauffman, 2004. "50th Anniversary Article: The Evolution of Research on Information Systems: A Fiftieth-Year Survey of the Literature in Management Science," Management Science, INFORMS, pages 281-298.
    9. 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.
    10. Matsubayashi, Nobuo, 2007. "Price and quality competition: The effect of differentiation and vertical integration," European Journal of Operational Research, Elsevier, vol. 180(2), pages 907-921, July.
    11. Roy Jones & Haim Mendelson, 2011. "Information Goods vs. Industrial Goods: Cost Structure and Competition," Management Science, INFORMS, pages 164-176.
    12. 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.

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