Pricing Digital
Textbooks
for growth and profits
Team Project
15.567 Economics of Information
MIT Students
Exponential growth
forecast, but pricing is key
Digital Textbook Sales
Five-year projection
% of U.S. textbook market
25
18.8%
20
15
10.45%
10
5.5%
5
1%
2010
2.5%
2011
2012
2013
2014
Year
Image by MIT OpenCourseWare.
Pricing in the ‘textbook’ category is
less variable
Fiction
Price
Textbooks
140
120
100
80
New (AMZN)
New (ALT)
Used
60
Kindle
40
20
0
0
20
Source: Amazon.com
40
60
80
100
120
140 0
10
20
30
40
50
Sample #
60
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
Price
140
120
100
80
New (AMZN)
Used
60
Linear (Used)
40
20
0
0
10
Source: Amazon.com
20
30
40
50
60
Sample #
Survey confirms WTP for
rentals ~30% of list price
Q: At what discount rate do you expect to
sell your books at the end of the semester?
10
8
6
4
2
0
Source: Survey of MIT Sloan students. 49 respondents.
Many versions exist in the
current market
Buy digital
textbook,
4%
Rent, 1%
Buy-newtokeep, 25%
Buy-usedtoresell, 34%
Buy-newtoresell, 10%
Buy-usedtokeep, 26%
Source: Survey of MIT Sloan students. 49 respondents.
Digital textbook limited to one version:
Purchase at ~20% discount
Price
120
100
80
New (AMZN)
60
Kindle
40
Linear (Kindle)
20
0
0
Source: Amazon.com
10
20
30
40
50
60
Sample #
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
10
Next: Use survey data to establish supply curve
and optimal fee
100
8
80
6
60
4
40
2
20
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
Source: Amazon.com
0
0% 5% 6% 12% 15% 25% 39% 46%
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
Textbooks
for growth and profits
Team Project
15.567 Economics of Information
MIT Students
MIT OpenCourseWare
http://ocw.mit.edu
15.567 The Economics of Information: Strategy, Structure and Pricing
Fall 2010
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