Impact of Agency Pricing Model on E-Books and Print Books in Online Retailing : An Empirical Examination

Two commonly used pricing models in the supplier-retailer setting are the agency pricing model and the wholesale pricing model. In the agency pricing model, the supplier sets the price, whereas in the wholesale pricing model, the price is set by the retailer. In this paper, we focus on the selling of e-books and print books by an online retailer using these pricing models. Traditionally, for print books, online retailers (such as Amazon) use the wholesale pricing arrangement with the publishers. However, for the e-books, they use either the agency pricing model (where the publishers set the price) or the wholesale pricing model (where the retailers set the price), primarily after a high profile case brought by the Department of Justice against Apple claiming that the agency model utilized by Apple caused higher prices and decreased consumer surplus. Essentially, the agency pricing model allows the publishers to take control over e-books and reduces the bargaining power of online retailers in setting retail prices of e-books. In this study, using the data from Amazon, we examine whether the agency contract between publishers and online retailers affects the prices of e-books and print books. Our empirical analysis shows that e-books prices are higher for the publishers with agency contract compared to those without such a contract. We also find that the agency contract for e-books has a spillover effect on the prices of print books. More importantly, our study suggests that the popularity of books in print and digital category and the listing of books in the kindle unlimited subscription category moderate the prices differently for different types of contracts. These findings have significant managerial implications for publishers in selecting pricing contracts and serve to provide guidelines for policymakers in regulating pricing contract between publishers and online retailers