Dynamics of Price Elasticity Over Time: Evidence from the E-Book Industry

The e-book market has been rapidly growing in recent years due to developments in technology and the widespread use of mobile devices such as smart phones and tablet PCs. Although an e-book serves as a nearly perfect substitute for its corresponding paper book in respect of contents, it has many differences regarding cost structure and consumers’ acceptance. Therefore, setting an appropriate price for an e-book is an academically interesting and practically important issue. Consumers’ price sensitivity and its dynamics should be investigated to develop an optimal pricing strategy. This paper empirically explores the dynamics of price elasticity of e-book demand. We use a data set that contains information for records of e-book sales for the last two years provided by Kyobobook, the largest book retailer in Korea. The results suggest that the demand of e-books is becoming price inelastic over time. This can be partially attributed to the reference price, which has been constructed by consumers through personal experiences. We also find other factors that influence the price elasticity and demand of e-books. From the results, we discuss the broader implications on pricing strategy

Changing Price Elasticity of Digital Goods: Empirical Study from the E-book Industry

Many industries including music and e-book industries have been making or already made the transition from physical to digital goods in a couple of decades. Since the transformation fundamentally affects the cost structure, consumers’ purchasing behavior, and other critical factors in the industries, it is important to understand the changes that the transition has brought about. This paper empirically explores the dynamics of price elasticity of e-book demand. Since the e-book market has been rapidly growing in recent years, consumers’ price sensitivity and its dynamics should be investigated to develop an optimal pricing strategy. We use massive industry sales data and find that demand of e-books is becoming price inelastic over time. This can be partially attributed to the reference price, which has been constructed by consumers through personal experiences. We also find other factors that influence the price elasticity and demand of e-books

How Does an Online Platform Impact on Human Behavior and Human Perception: Evidence from the P2P Lending Market and the E-Book Market

The development of information systems and the Internet has facilitated the creation of an online platform where two or more groups are involved and interact online with each other. We explore the impact of an online platform on human behavior and human perception. There are various online markets. We focus on two markets: the online P2P market, and the e-book market. This paper includes three essays: ‘Herding behavior in online P2P lending: An empirical investigation’, ‘Does borrowers’ information renewal change lenders’ decision in P2P lending? An empirical investigation’, and ‘Dynamics of price elasticity over time: Evidence from the e-book industry’. Since the first essay was published in the journal and the third one was submitted to the conference, we simply present the abstracts of these essays in this paper. Also, we mainly focus on explaining the current stage and plans for completion of the second paper. Although this paper is not yet completed, we empirically confirm some characteristics of the online markets. We expect that it would be useful to understand online business and get insights into the online markets

Price Elasticity in Electronic Markets: Evaluating Quality and Product Information for Search and Experience Products

Evidence has shown that the provision of product information in electronic markets decreases the price elasticity of demand due to the ‘fit’ cost. This effect, however, could differ according to how consumers perceive the value of the product information to their quality evaluation procedures. If the information has very limited value, then they may not rely on it; thus, the demand elasticity may not decrease as predicted. The value of information to the quality evaluation procedure is determined by the consumer’s difficulty in judging product quality. Specifically, product attributes related to the quality of experience products cannot be ascertained by prior search and the value of information in this case is therefore low. Based on this prediction, this research investigates how the price elasticity of demand differs in relation to the difficulty of evaluating quality and how it affects the influence of product information provided in electronic markets on elasticity. Groupon sales data are used to empirically test these questions. The findings confirmed that elasticity is lower for experience products than for search products. This also suggests that the provision of product information lowers elasticity in differentiated product markets and that its effect is stronger for search products than experience products

OPTIMAL ONLINE BANKING SECURITY CONFIGURATION UNDER BURDEN OF PROOF

Against the threat of online banking theft, governments are imposing two different types of legal schemes: strict liability and negligence. Countries like the U.S. are imposing strict liability on online banking transactions to ensure that service providers like banks take more care. However, under strict liability banks does not provide adequate client security measures. Countries like Korea are imposing burden of proof on online banking transactions to ensure that general public take more care and reduce burden of accident prevention on banks. However, under burden of proof service providers are developing and providing excessive number of client security measures for their users. In each legal regime online banking security configurations are not consistent with the original intention of the related liability scheme. This paper investigates using microeconomic models how unique characteristics of information technology changed traditional working mechanism of the liability scheme with microeconomic models and it also provides practical implications for managers

Analysis of Advertisement based Business Model under Technological Advancements in Fair Use Personal Recording Services: A Law and Economics Approach

Recent technological advancements such as cloud based digital video recording services and advertisement-skipping services are threatening copyright holders’ business models more than ever. This paper introduces an economic model to analyze court rulings on the personal fair use of video recording technologies. Although personal video recorders might have been beneficial for copyright holders in the past, newer and more innovative information technologies have the potential to restrict copyright holders’ usual distribution channels, namely live airing and video on demand. By linking a law and economics approach with the characteristics of information technology, this paper provides a new perspective to explain the effects of copyright law on the business strategies of copyright holders under the threat of new kinds of information technologies. The court may have to consider adjusting the boundaries of fair use according to match such rapid technological development. Business managers should also be aware that this combination of legal rulings and information technology may create either benefits or disruptions

How Did Facebook Outspace Myspace With Open Innovation? An Analysis Of Network Competition With Changes Of Network Topology

A social network service (SNS) is one of the most prospering social media platforms in the Web 2.0 era. In May 2007, Facebook implemented “Open API,” which allows a third-party to create its own APIs and facilitates group interactions. This innovation led to a radical increase in user growth of Facebook and surpassed leading SNS, Myspace at that time. There have been several laws of network value such as Metcalfe’s and Reed’s law which assume different topology of networks. Borrowing these concepts, we hypothesize the positive relationship between the growth of SNS adoption and “Open API” policy. In other words, this policy revolutionized Facebook’s topology from one defined by Metcalfe’s law to that of Reed’s law. We model the duopoly competition of SNSs and show that the growth of SNS adoption is a polynomial function of time under both Metcalfe’s and Reed’s law, but the marginal growth under Reed’s law is greater than that under Metcalfe’s law. We also empirically test the existence of structural change after the adoption of “Open API” policy. The empirical result confirms the structural change in Facebook, which implies that “Open API” transformed Facebook one-to-one communication network into a group forming network

An Analysis of Network Competition with Changes of Network Topology through “Open API”

Social network services (SNS) are the most prospering business in Web 2.0 regime. In May 2007, Facebook introduced an “Open API” policy; it allowed third-parties to create SNS applications by themselves. Through this innovation Facebook rapidly grew, and it surpassed the then leading SNS - Myspace. Based on the laws of the network value, we hypothesize that “Open API” revolutionized Facebook’s topology with two topologies that are accordingly defined by Metcalfe’s law and Reed’s law. We model the duopoly competition of SNSs and show that the growth of SNS adoption is a polynomial function of time under both laws, but that the marginal growth under Reed’s law is greater than that under Metcalfe’s law. We also empirically test the effect of “Open API” on user growth by using panel analysis on traffic data of five SNSs. The result implies that “Open API” changes a SNS into a group forming network