Who benefits from offline investment: an analysis of strategic interactions between e-book pricing and bookstores' investment

Due to an increasing public desire for physical experiences, numerous online bookstores have begun to invest in offline bookstores for economic benefits. The investment of e-commerce companies results in additional online sales of both physical and electronic books (e-books) but complicates the publisher's pricing strategy of e-books. We construct a supply chain comprising a publisher and an online bookstore, and investigate the strategic interactions between two e-books procing models (i.e., wholesale model and the agency model) and the offline investment strategy, which enriches many traditional e-book pricing models. We analytically derive that the offline investment changes the bookstore's preference for the e-book pricing model. Additionally, in the wholesale model, the publisher prefers the bookstore with low investment efficiency not to invest. Otherwise, the publisher prefers the bookstore to invest. Finally, in the wholesale model, the bookstore always prefers to invest; but in the agency model, the bookstore chooses to invest only if the investment efficiency and revenue sharing ratio satisfy certain conditions.