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Pricing Digital
Textbooksfor growth and profits
Team Project15.567 Economics of InformationMIT Students
Exponential growth forecast, but pricing is key
18.8%
10.45%
5.5%
2.5%1%
20142013201220112010
25
20
15
10
5
Year
% o
f U.S
. tex
tboo
k m
arke
t
Digital Textbook SalesFive-year projection
Image by MIT OpenCourseWare.
Pricing in the ‘textbook’ category is less variable
Source: Amazon.com
Fiction TextbooksPrice
Sample #0 10 20 30 40 50 60
New (AMZN)
New (ALT)
Used
Kindle
0
20
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60
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140
0 20 40 60 80 100 120 140
Hypothesis
In a market with
• a well developed 2nd hand market1
• where goods do not degrade significantly through use
pricing will be less variable 2nd hand pricing indicate WTP for rental
1 50-60% of textbooks are purchased 2nd hand. Source: Survey of MIT Sloan students. 49 respondents.
Data suggests WTP for rentals is ~30% of list price
Source: Amazon.com
0
20
40
60
80
100
120
140
0 10 20 30 40 50 60
New (AMZN)
Used
Linear (Used)
Sample #
Price
Survey confirms WTP for rentals ~30% of list price
Source: Survey of MIT Sloan students. 49 respondents.
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Q: At what discount rate do you expect to sell your books at the end of the semester?
Many versions exist in the current market
Source: Survey of MIT Sloan students. 49 respondents.
Buy-new-to-
keep, 25%
Buy-new-to-
resell, 10%
Buy-used-to-
keep, 26%
Buy-used-to-
resell, 34%
Buy digital textbook,
4%
Rent, 1%
Digital textbook limited to one version: Purchase at ~20% discount
Source: Amazon.com
0
20
40
60
80
100
120
0 10 20 30 40 50 60
New (AMZN)
Kindle
Linear (Kindle)
Sample #
Price
Current price point fails to maximize growth & profits
• 29% willing to pay full price to own
– But currently purchase at 20% discount
• 44% would not buy digital as buying and reselling print is better value
– Slows growth in digital textbook sales
– Printing + shipping costs reduce profits
• 30% of new and 55% of used books purchased will be resold
– No value captured on these transactions
Source: Survey of MIT Sloan students. 49 respondents.
Hypothesis II
Enabling resale of digital textbooks would create a 2nd
hand market and increase growth and profits
• Buy-to-own
• Buy-to-maybe-own
Resell fee controls size of 2nd hand market
Source: Amazon.com
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0% 5% 6% 12% 15% 25% 39% 46%
Next: Use survey data to establish supply curve and optimal fee
Current conclusions
• 2nd hand textbook market enables us to establish the value of temporary ownership and hence WTP for rentals
• Enabling resale of digital textbooks, whilst controlling the size of 2nd hand market through resale fees, would increase profits
Could this help maintain higher price points for other digital goods?
Pricing Digital
Textbooksfor growth and profits
Team Project15.567 Economics of InformationMIT Students
MIT OpenCourseWarehttp://ocw.mit.edu
15.567 The Economics of Information: Strategy, Structure and Pricing
Fall 2010
For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms.
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