Are E-Books a Different Channel? Multichannel Management of Digital Products
49 Pages Posted: 4 Jun 2015 Last revised: 18 Sep 2019
Date Written: August 20, 2019
Digital products are differentiated from online and offline physical products in important ways. This paper studies the impact of digital products on existing channels and the optimal multichannel management strategy in the context of the book industry. Using individual-level online transaction data and county-level offline bookstore data, we estimate a demand model of book format and retailer choices across genres. We use the estimates to solve for publishers’ optimal wholesale pricing strategy across channels. The demand-side estimates reveal that ebooks and offline bookstores appear to compete head-to-head in the “casual” genre. The supply-side results suggest that as local bookstore availability increases, publishers should charge higher wholesale prices in the offline print channel, especially for “casual” books. Interestingly, the ebook channel does not always hurt print channels but can serve as a strategic complement and enhance the pricing power of print channels in some markets and genres; this complementarity does not rely on branding or marketing communication and crucially depends on the relative strength of the channels. We use counterfactual analysis to illustrate the mechanism behind this result and how a multichannel management strategy should account for relative strength across channels.
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