E-Book Pricing and Vertical Restraints

40 Pages Posted: 9 Oct 2014 Last revised: 23 Dec 2014

Babur De los Santos

Clemson University

Matthijs R. Wildenbeest

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Date Written: December 2014

Abstract

This paper empirically analyzes how the use of vertical price restraints has impacted retail prices in the market for e-books. In 2010 five of the six largest publishers simultaneously adopted the agency model of book sales, allowing them to directly set retail prices. This led the Department of Justice to file suit against the publishers in 2012, the settlement of which prevents the publishers from interfering with retailers' ability to set e-book prices. Using a unique dataset of daily e-book prices for a large sample of books across major online retailers, we exploit cross-publisher variation in the timing of the return to the wholesale model to estimate its effect on retail prices. We find that e-book prices for titles that were previously sold using the agency model decreased by 18 percent at Amazon and 8 percent at Barnes & Noble. Our results are robust to different specifications, placebo tests, and synthetic control groups. Our findings illustrate a case where upstream firms prefer to set higher retail prices than retailers and help to clarify conflicting theoretical predictions on agency versus wholesale models.

Keywords: e-books, agency, vertical restraints, most favored nation, media economics, resale, price maintenance, Amazon

JEL Classification: D43, D83, L13, L41, L42

Suggested Citation

De los Santos, Babur and Wildenbeest, Matthijs R., E-Book Pricing and Vertical Restraints (December 2014). NET Institute Working Paper No. 14-18. Available at SSRN: https://ssrn.com/abstract=2506509 or http://dx.doi.org/10.2139/ssrn.2506509

Babur De los Santos (Contact Author)

Clemson University ( email )

228 Sirrine Hall
Clemson, SC 29634
United States
864-656-3953 (Phone)

HOME PAGE: http://babur.people.clemson.edu

Matthijs R. Wildenbeest

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States
812-856-5067 (Phone)
812-855-3354 (Fax)

HOME PAGE: http://www.kelley.iu.edu/mwildenb

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