“Pricing Digital Content Product Lines: A Model and Application for the National Academies Press” by P K Kannan (University of Maryland), Barbara Kline Pope (National Academies Press), and Sanjay Jain (Texas A&M University).
This work involves a specialist publisher, the National Academies Press, that was provided an opportunity to distribute multiple formats of its content via the Internet. While digital copies such as pdf files are possible substitutes for printed books, there is complementarity in the form of some consumers buying bundles of both. The authors develop a pricing model for both product forms (separately and together), allowing for both substitution and complementarity effects. The model is then calibrated using an on-line experiment testing different product and bundle prices. The results of this calibration are then validated using actual sales data after the model was implemented, and its recommendation was implemented in the marketing and pricing policies at the National Academies Press. The work both demonstates how to model the bundling problem and makes a substantive contribution in an important substantive area, addressing the distribution and pricing of digital and hard copy products, an increasingly important problem facing content providers.