E-reader market evolution started in late 2007 when Amazon releases its e-reader device named Kindle. Kindle is a mobile reading device connects to Amazon library through 3G network to download books, magazines, newspapers, personal documents. Kindle will then display those papers electronically to its black and white screen . In this paper we will cover the market equilibrating process of e-reader devices and how Amazon adjusts its price to increase revenue.
After the tremendous success of Kindle in 2007, Citigroup analyst predict Amazon revenue to be between $400 million and $750 million from selling Kindle by 2010, and 1% to 3% of Amazon’s total revenue will come from Kindle . Amazon priced the Kindle at $399, and to attract more buyers Amazon reduced the price to $359 to increase demanded quantity and therefore increase revenue. Because Kindle is elastic product, reducing its price will increase the demanded quantity that will increase the total revenue of the firm .
In 2008, after one year of first release of Kindle, the demands were very high. Kindle was out of stock for 2 to 3 weeks . Amazon did not reduce the price of Kindle however consumer believes the price of $359 – $399 is a cheap price and this explain the increase in demand. The $359 price was the equilibrium price in which consumers are willing and able to purchase and Amazon was willing and able to make product available for sale . This success was challenged by competitions, change consumer tastes and advance technology.
Even though “Amazon sold at least 2 million Kindles in 2009, accounting for about 70% of all e-reader sales” it loses some of its market share. Barnes & Noble launched e-book reader device named Nook in October 2009. Nook comes with 6-inch color screen and like the Kindle; the Nook has a built-in 3G wireless connection and a built-in Wi-Fi adapter. One of the determinants of demand is price of related substitute products. Nook is a substitute to kindle which make the demand on Kindle lower.
The affect of a substitute product is to shift the demand curve to the left. When the demand curve is shifted to the left and the supply curve does not change, equilibrium price will be lower and the quantity demanded will be lower too. To face this change in market, Amazon reduced the Kindle price to $259 in October 2009 to increase revenue and fight the new comers . The biggest battle faced kindle was not with Nook but with the new Apple product the Ipad.
The Ipad introduced this year with price start from $499. Ipad is tuched screen mobile laptop with no keyboard and high screen resolution. Ipad is also a e-reader with color screen. Kindle devoted exclusively to digital books however the Ipad has millions of added features and applications in addition to e-reader. Customer tastes has been change to prefer the new Ipad over the Kindle. This change in market force Amazon and Barnes & Nobles to cut their e-reader device to be under the $200.