Analysis of eBook Lending: A Game-Theory Approach

Retailers have seen a steady and continuous increase in eBooks sales in recent years. A new strategy to further promote eBook sales is to provide eBook lending option. For example, Amazon.com allows Kindle eBook buyers to lend their eBooks for 14 days. The free eBook lending option will add additional utility to eBook buyers such as exchanging for other eBooks or reducing uncertainties of purchasing new books. However, such strategy might cannibalize the retailers' sales of print books. Using a game theory model, we explore whether the retailer will be better off to introduce the lending program. We derive the equilibrium price and identify the conditions under which the retailer can offer eBook lending option and generate more revenue.