The Kindle: Pricing Complementary Products in a Competitive Market

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In the 1440s, when Johannes Gutenberg invented the first printing press, the business of publishing began. For the first time, multiple copies of books could be printed quickly and disseminated widely. Information became available not only to the wealthy, who could afford to commission a hand-copied manuscript, but to anyone who could pay the moderate cost of a mechanically reproduced book.

With the invention of the internet, digitized texts, and electronic reading devices, the book business in the 2000s is undergoing a transformation not seen since Gutenberg. In particular, the Kindle, a portable electronic reading device sold by online retailer, is said to be changing the experience of reading, because it makes books instantly available, it can hold hundreds of books in one lightweight device, and it closely simulates the visual and aesthetic pleasures of reading a traditional book.

The Kindle promises to make the book business more complex, because it changes both the product and the business model for publishing. Since the 19th century, the book business has involved several players: the author, the publisher, the distributor, the bookseller, and the reader. But with electronic publishing, the traditional network has been pared down. There is no printer; instead, the customer reads the text on an electronic device. The distributor is replaced by a direct transfer of digital content from publisher to online bookseller. With new options for self-publishing, the author and publisher may be the same person. In addition, the product has changed from a paper book to an electronic reader combined with downloadable content.

In mid-2009, Amazon faced an important set of strategic decisions in electronic publishing. With new e-reader devices and other sources of e-books entering the market, the company needed to determine how it would respond to the increased competition. Should the company open its format to other retailers? And how should the company price the Kindle and the accompanying e-books?

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