Analysis of Bundling Homogeneous Content Product in Different Formats: The Case of the Online Book Industry

Content digitalization brings products with homogeneous content but in different formats (digital format and physical format) together. Recently retailers in the online book industry started bundling programs such as Amazon Matchbook, giving print book buyers a free or deeply discounted e-book version. While this bundling strategy is attractive to consumers, it potentially allows consumers to resell the print book in the bundle, which might cannibalize retailers' sales. Consequently, it will influence all participants in the industry including the publisher, the retailers, and the consumers. Using a two-period model, the authors investigate the impacts of this strategy under both monopoly and competition. The authors compute the equilibrium outcome for both scenarios. The findings show that (1) under monopoly, both the publisher and the retailer sell at a higher rate; consumers also see higher total surplus; (2) under competition, the retailer who provides bundling will gain a competitive advantage. This study indicates that the bundling model yields a win-win strategy.