As Apple prepared to open its iBooks Store, it realized that matching the $9.99 price point...
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As Apple prepared to open its iBooks Store, it realized that matching the $9.99 price point of e-books on Amazon's Kindle would be difficult. Around the same time, executives of several publishing firms held secret meetings to discuss how Amazon's low prices were hurting print sales. The publishers began implementing coordinated strategies to raise book prices and to delay e-book releases to protect hardcover book sales. Upon learning of the publishers' discontent, Eddy Cue of Apple met with the publishers to negotiate a mutually beneficial contract. In the new deal, e-books would be sold using an agency model whereby publishers set the retail price. Apple was guaranteed the lowest price on the market for e-books. Amazon responded by moving to an agency model. Prices on e-books increased an average 14.2% and 42.7% for bestsellers. Amazon's share of the market fell from 90% to 60%. 1) How does this illustrate the need for antitrust laws in the United States? 2) Part of the agreement was to delay the release of e-books on new release titles. Suppose each publisher realizes it can increase its individual profitability by releasing the e-book version of its popular titles earlier than agreed upon in anticipation of the upcoming summer reading season. What is the most likely Nash equilibrium in this example? Explain. 3) Suppose the accompanying graph represents the marginal cost (MC), marginal revenue (MR), and demand (D) curves for new release books. Assume there are two publishing firms and each agrees to collude by splitting total industry production. What point in the illustration below represents the quantity that each firm will produce? Explain. Price ($/book) MR B C D MC D Quantity As Apple prepared to open its iBooks Store, it realized that matching the $9.99 price point of e-books on Amazon's Kindle would be difficult. Around the same time, executives of several publishing firms held secret meetings to discuss how Amazon's low prices were hurting print sales. The publishers began implementing coordinated strategies to raise book prices and to delay e-book releases to protect hardcover book sales. Upon learning of the publishers' discontent, Eddy Cue of Apple met with the publishers to negotiate a mutually beneficial contract. In the new deal, e-books would be sold using an agency model whereby publishers set the retail price. Apple was guaranteed the lowest price on the market for e-books. Amazon responded by moving to an agency model. Prices on e-books increased an average 14.2% and 42.7% for bestsellers. Amazon's share of the market fell from 90% to 60%. 1) How does this illustrate the need for antitrust laws in the United States? 2) Part of the agreement was to delay the release of e-books on new release titles. Suppose each publisher realizes it can increase its individual profitability by releasing the e-book version of its popular titles earlier than agreed upon in anticipation of the upcoming summer reading season. What is the most likely Nash equilibrium in this example? Explain. 3) Suppose the accompanying graph represents the marginal cost (MC), marginal revenue (MR), and demand (D) curves for new release books. Assume there are two publishing firms and each agrees to collude by splitting total industry production. What point in the illustration below represents the quantity that each firm will produce? Explain. Price ($/book) MR B C D MC D Quantity
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Strategic Management An Integrated Approach
ISBN: 978-1111825843
10th edition
Authors: Charles W. L. Hill, Gareth R. Jones
Posted Date:
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