Pricing and Quality Decisions in the Distribution System of Physical Books and Electronic Books

Since the increasing popularity of electronic book cannibalizes the sales of physical book, publishers try to enhance the competitiveness of physical book by improving its quality in recent years. Inspired by this phenomenon, we establish analytical models to investigate the optimal quality and pricing decisions in book supply chain by game theory. We also analyze the effects of physical book quality and customer acceptance of electronic book on the publisher's and bookstore's pricing strategies. We find that both the physical book quality and customer acceptance of electronic book have a great impact on the publisher's and bookstore's pricing policies and profits. An interesting result shows that the improvement in the quality of physical book always leads to the increase of physical book's optimal price, but its influence on electronic book's optimal price depends on whether the market is price oriented or quality oriented. Keywords—pricing decision; electronic book; product quality; supply chain management