Abstract
This paper studies intertemporal price discrimination (IPD) with complementary products in the context of e-readers and e-books using individual-level data (2008-2012). I estimate a dynamic demand model of e-reader adoption and subsequent book quantity, reading format, and retailer choices in several book genres. I use the estimates to simulate a monopolist’s optimal dynamic pricing strategies facing forward-looking consumers. Complementarity provides the firm a novel dimension of consumer heterogeneity (relative demand elasticities between e-readers and e-books) to exploit. Harvesting on e-readers and investing in e-books offers a better screening device for more profitable consumers and limits consumers’ ability to intertemporally arbitrage.
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