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

42 Pages Posted: 7 Oct 2013

See all articles by Jin-Hyuk Kim

Jin-Hyuk Kim

University of Colorado at Boulder

Tin Cheuk Leung

Wake Forest University

Date Written: September 1, 2013

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.

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

JEL Classification: L15, L63, O30

Suggested Citation

Kim, Jin-Hyuk and Leung, Tin Cheuk, Quantifying the Impacts of Digital Rights Management and E-Book Pricing on the E-Book Reader Market (September 1, 2013). NET Institute Working Paper No. 13-03, Available at SSRN: https://ssrn.com/abstract=2335652 or http://dx.doi.org/10.2139/ssrn.2335652

Jin-Hyuk Kim (Contact Author)

University of Colorado at Boulder ( email )

Campus Box 256
Boulder, CO 80309
United States

Tin Cheuk Leung

Wake Forest University ( email )

Winston-Salem, NC 27109
United States

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