Abstract
The book industry is undergoing a digital transformation enabled by the Internet and e-book technology, which offers a novel channel for delivering books to consumers who mostly purchase paper books from physical or online bookstores. With a game theory model that introduces the concepts of paper book market asymmetry and e-book market asymmetry, we examine how the entry of an e-book seller affects strategic interaction in the book markets and impacts sellers and consumers. We show that market asymmetries, ownership of the e-book seller, and consumers’ preferences for e-books are important determinants of prices, market shares and total book readership. We find that prices in the book market may increase after the e-book entry. Total readership may decrease after e-book entry, if the e-book seller is owned by one of the paper book sellers. The lowest total readership occurs when the online paper book seller owns the e-book seller.