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E-books: A Tale of Digital Disruption

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  • Gilbert, Richard J

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.

Suggested Citation

  • Gilbert, Richard J, 2015. "E-books: A Tale of Digital Disruption," Department of Economics, Working Paper Series qt0wg6v2r6, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    • Handle: RePEc:cdl:econwp:qt0wg6v2r6
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    References listed on IDEAS

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    1. Oecd, 2012. "E-books: Developments and Policy Considerations," OECD Digital Economy Papers 208, OECD Publishing.
    2. Oystein Foros & Hans Jarle Kind & Greg Shaffer, 2013. "Turning the Page on Business Formats for Digital Platforms: Does Apple's Agency Model Soften Competition?," CESifo Working Paper Series 4362, CESifo.
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