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Analysis of Product Distribution Strategy in Digital Publishing Industry Based on Game-Theory

  • Li-ping Xu EMAIL logo and Haiyan Chen
Published/Copyright: April 26, 2017
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Open Physics
From the journal Open Physics Volume 15 Issue 1

Abstract

The digital publishing output increased significantly year by year. It has been the most vigorous point of economic growth and has been more important to press and publication industry. Its distribution channel has been diversified, which is different from the traditional industry. A deep research has been done in digital publishing industry, for making clear of the constitution of the industry chain and establishing the model of industry chain. The cooperative and competitive relationship between different distribution channels have been analyzed basing on a game-theory. By comparing the distribution quantity and the market size between the static distribution strategy and dynamic distribution strategy, we get the theory evidence about how to choose the distribution strategy to get the optimal benefit.

Keywords: Industry chain; Game-Theory; Distribution strategy
PACS: 02.50.Le

1 Introduction

There is no unified definition of a digital publishing in China, but there is a relatively consistent view about it in the field of publishing industry. The digital publishing products consist of e-books, digital newspapers, electronic periodicals, original literature network publications, network maps, digital music, animations, online games, etc [1]. This opinion is in agreement with the concept of digital content industry, which has been given by the Organization for Economic Co-operation and Development in 1998 [1]. In developed countries, the digital publishing industry has kept a high growth rate since 2002, and has become one of the important pillar industries for national economy [2]. In China, the development of digital publishing industry started late and the research is delayed, but the outputs of the industry increased rapidly. In 2006, the annual output value was 21.3 billion. In 2010 it had a record high of over 100 billion [3], and in 2015 it reached 440.4 billion. Dramatically, the digital publishing industry has become the new economic growth point in China [4].

Due to the short development period, the chain of digital publishing industry changes with its development, which leads to the complicated chain structure and the relationship between the participation complex. For long-term a healthy development of digital publishing industry is necessary to clarify industry chain and analyze the relationship of participations. Predicting trend of the development of the industry is more important to formulating the rational policy, choosing optimal strategy and taking effective measure, which benefits digital publishing industry development. In this study, we focus on the product distribute strategy of digital publishing industry.

Game theory is “the study of mathematical models of conflict and cooperation between intelligent rational decision-makers.” Game theory is mainly used in economics, political science, and psychology, as well as in logic, computer science and biology [5]. Originally, it addressed zero-sum games, in which one person’s gains result in losses for the other participants. Today, game theory applies to a wide range of behavioral relations [6]. It is a major method used in mathematical economics and business for modeling competing behaviors of interacting agents. In this study, we used the game theory to research distribute strategy between the different product distribute channels, such as traditional internet channel, mobile internet network channel and non-network channel. On the basis of the strategy model, the distributors make the optimal decision strategy to get higher profits.

2 Chain of digital publishing industry

In China, with the rapid development of science and technology, the digital publishing industry has developed rapidly, which has been promoted by the demand of the society for nearly ten years. Because the traditional publishing industry has some unsolved problems, new publishing model that has been transformed from it has some inherit characters and the relationship of participants in the industrial chain is therefore more complicated.

2.1 Model of industry chain

The digital publishing industry is different from traditional publishing. Participants include the following main objects: the original content providers (individual or organization), copyright services, digital content service providers, network operators, application service providers, terminal equipment manufacturers, users (individual users or institutions), etc. They get benefit from the industry, so keeping their interests is an efficient way to make a continuous development for digital publishing industry. The decision of choosing distribute channel and size is important to make the profit higher on the basis of current distribution proportion.

The construction of the digital publishing industry chain has been shown in Figure 1 [1, 7].

Figure 1 Construction of digital publishing industry chain.
Figure 1

Construction of digital publishing industry chain.

In digital publishing industry, network channel is an important transmission method for its products, which includes traditional network channel and mobile network channel. There are several kinds of enterprises in industry chain, which activities are limited to their own conditions, at the same time affected by others. So, all enterprises must connect with each other to maximize the benefits, and to make the industry sound developing. There is a difficult subject: How to deal with the conflict and how to cooperate with other competitors?

2.2 Present situation

Digital publishing industry has developed rapidly since 2006. Outputs have increased year by year, as shown in Table 1. In 2015, digital publishing industry held 20.5% outputs value of the press and publication industry [8–11]. A planned aim clearly put forward the 13th five-year plan of China, which is to build a system of public cultural services, make cultural industry to be the pillar of national economy. The cultural industry will give impetus to the development of the public culture. In the planning for cultural industry development, it has been put forward to promote the transformation and upgrading of traditional industries, to speed up the development of network audio and video, mobile multimedia, digital publishing, online games, etc [12].

Table 1

Outputs of digital publishing industry in recent decade

yearDigital publishing industryPress & publication industryProportion of digital press & publication industry publishing industry in
outputsGrowth rate (%)outputsGrowth rate (%)
2006213−−−
2007362.4270.15%−−−
2008556.5653.57%8890.8−6.26%
2009799.443.63%10668.920.00%7.49%
20101051.7931.57%12698.119.02%8.28%
20111377.8831%14568.614.73%9.46%
20121935.4940.47%16635.314.19%11.6%
20132540.3531.25%18246.49.68%13.9%
20143387.733.36%19967.19.43%17.1%
20154403.8530%21655.98.46%20.5%

The growth trend of the digital publishing industry for the recent ten years is shown in Figure 2. The development growth rate of digital publishing industry tends to be stable. The proportion of digital publishing industry in press & publication industry increases year by year. Digital publishing industry is more and more important, and its growth rate is higher than press & publication industry.

Figure 2 The trend of development.
Figure 2

The trend of development.

3 Distribution channel

3.1 Development mode

In the process of traditional industry transformation, the profit is the key to decide whether a digital publishing business can survive [3]. The outputs of digital publishing industry have continuously increased in the recent years, which shows sound development. Digital publishing industry get profit through product sales, online advertising, online information services, etc.

The developing mode of the main channels include: (1) the free channels: which means digital publishing companies sale products on their own digital publishing platform; (2) the consignment channels: digital publishing companies consign another platform to sale products, and proportionally share the profit, such as App Store; (3) ecommerce distribution channels: digital publishing companies provide the product to some online bookstores at a discounted price. Then, E-commerce companies are permitted to be priced for the product, such as Amzon.com, JD.com, dangdang.com, etc; (4) satellite distribution channels: it is mainly use for audio and video, digital products are distributed via satellite, and directly delivered to the user. This transmission channel coverages more widely; (5) the traditional bookstore distribution channels [13].

All distribution channels are divided into three categories: traditional network channels, mobile network channel and non-network channel [1].

3.2 Game relationship of distribution channel

In the digital publishing industry, the users play very important roles. It is common goal for enterprises to make a customer satisfied, give customer what they want, and maximize the customer value, during they create value and transmit it. The enterprises of the chain maximize its own profit through customer value maximization. Users can get digital publishing products through the traditional Internet channel, mobile Internet channel. They care about the content of product, but not about which channel they get.

Can we get the highest profits, when we distribute the digital products in multiple channels at the same time? It is a subject which is worth thinking about for everyone. If the products content is limited, and if users get more content in a traditional network channel, the scale of mobile network channel and non-network channel will decrease. It is an internal game, which will increase the cost and promote the internal competition. So, it is very important to choose a reasonable distribution strategy for getting high profit in the digital publishing industry.

Let’s see the cooperation & competition relationship between three different distribution channels.

4 Game analysis of digital distribution channel

Game theory has been introduced by Von Neumann and Morgenstern as a mathematical tool to study competitive and strategic human behaviors (Von Neumann and Morgenstern, 2007). A game models the interactions of two or more players that have two or more strategies and the pay-off of each player not only depends on its strategy, but also depends on an opponent strategy. Pay-off is a number that represents the utility of a situation which is resulted from a strategy profile (i.e., set of individual strategies (s1, s2, sn), one strategy (i.e., sii ∈ {1, n}) for each player) [14]. Many scholars apply game theory to study the relationship between groups, in order to make clear the law of the industry development, and they have achieved some success [15–19].

4.1 Static distribution game model

1 Problem description

(1) Participants playing the game: A, B, C are representative of distribution channel: traditional network channel, mobile Internet channel and non-network channel. i ∈ {1, 2, 3}, respectively on behalf of player: A, B, C, three channels corresponding to different values.

(2) Assumption: game players are rational, no one has the advantage of distribution, each channel is independent, distribution in different channel happens simultaneously;

(3) Parameters: T is total supply of the three channels (T = t1 + t2, t3), C is the distribution cost, which is related with the distribution scale in that channel, Ci(ti) means the cost of channel i, M is market size; I is profit.

2 Static game model

I is profit, I1, I2, I3 is profit respectively for three distribution channels:

(1)I1=(M−T)*t1−C1(t1)=(M−t1−t2−t3)*t1−C1(t1)
(2)I2=(M−T)*t2−C2(t2)=(M−t1−t2−t3)*t2−C2(t2)
(3)I3=(M−T)*t3−C3(t3)=(M−t1−t2−t3)*t3−C3(t3)

For maximizing the profit, let ∂C1(t1)∂t1C′1, ∂C2(t2)∂t2C′2, ∂C3(t3)∂t3C′3

(4){∂I1(t1)∂t1=M−2t1−t2−t3−C′1∂I2(t2)∂t2=M−t1−2t2−t3−C′2∂I3(t3)∂t3=M−t1−t2−2t3=C′3

Set ∂I1(t1)∂t1=0, ∂I2(t2)∂t2=0, ∂I3(t3)∂t3=0, we get equations.

(5){M−2t1−t2−t3=C′1M−t1−2t2−t3=C′2M−t1−t2−2t3=C′3
(6){t1=M−t2−t3−C′12t2=M−t1−t3−C′22t3=M−t1−t2−C′32

The solution is:

(7){t1=M−3C′1+C′2+C′34t2=M+C′1−3C′2+C′34t3=M+C′1+C′2−3C′34

The equation result shows that distribution scale ti is related with C1',C2',C3'.Ci' “is lower” means the cost per distribution for quality of channel i is lower, the circulation of channel i is more efficient than the other channel. The difference in the distribution scale between distribution channel, t2−t1=C1'−C2', t3−t1=C1'−C3′, t3−t2=C2'−C3′. It can be known that distribution scale difference between different distribution channels depends on cost change per distribution quality in that distribution channel. When C1'=C2'=C3'=C′, T=34(M−C′). In the early period of transition of traditional publishing industry, the cost of digital content production and distribution is higher than traditional distribution channels. More digital products are distributed in non-network channel. With the gradual advancement of digital transition, the cost of network distribution is basically stable, and one can increase distribution in network channel, both of traditional network channel and mobile network channels. The research shows if traditional publishing did not finish the industry transition quickly, there would be obstacles to obtain high industry profits, and would leave digital publishing industry lags behind. So, one must make efforts to finish industry transformation.

4.2 Dynamic game model

In a static game model, the distribution of digital publishing products is a static process. There is no advantage for each distribution channel. We distribute digital publishing product simultaneously. The digital publishing industry is based on the development of the network technology, which clearly depends on the Internet and mobile Internet. There are more and more users who choose to read the digital terminal first. So, in practice, the network distribution channel is the first choice for distributor. The distribution decision of non-network channels will be based on the market situation of network distribution channel. The digital product distribution is a dynamic process. One can get the dynamic model by adjusting the static game model.

The distribution of non-network channels is based on distribution of network channel. So, let ∂I3(t3)∂t3=0 first, (3) will be

(8)M−t1−t2−2t3=C′3

get

(9)t3=M−t1−t2−C′32

Substitute (9) into (1), (2), it will be

(10)I1=(M−t1−t2−M−t1−t2−C′32)*t1−C1(t1)=(M−t1−t22−C′32)*t1−C1(t1)=12(Mt1−t12−t1t2)+12C′3t1−C1(t1)
(11)I2=(M−t1−t2−M−t1−t2−C′32)*t2−C2(t2)=(M−t1−t22−C′32)*t1−C2(t2)=12(Mt2−t1t2−t22)−12C′3t2−C2(t2)

Set ∂I1(t1)∂t1=0, ∂I2(t2)∂t2=0,

(12){M−2t1−t2−2C′1+C′3=0M−t1−2C′2+C′3−2t2′=0
(13){t1=M−t2−2C′1+C′32t2=M−t1−2C′2+C′32

We get t1, t2, t3 from (9), (13),

(14){t1=M−4C′1+2C′2+C′33t2=M+2C′1−4C′2+C′33t3=M+2C′1+2C′2−5C′36

If we distribute digital publishing product in dynamic process, we will learn that distribution scale in different channel has changed relatively. The difference in distribution scale between various distribution channels is changed: t2−t1=2(C1'−C2'), t3−t2=t3−t1=10C1'−2C2'−7C3'−M6. When C1'=C2'=C3'=C′, T=56(M−C′).

5 Results

In the static game model, the different distribution channels are synchronous and static. The different distribution scale in difference distribution channel is related to cost per distribution quality, t2−t1=C1'−C2', t3−t1=C1'−C3′, t3−t2=C2'−C3′. Through adjusting the static model, we get dynamic distribution model. In that dynamic model, non-network channel distribution is determined by the market reaction of two kinds of network channels distribution. The non-network channel distribution difference of t3 and t2, t1 is related to not only the distribution cost difference of all channel units, but the total market scale. We get this conclusion from t2−t1=2(C1'−C2'), t3−t2=t3−t1=10C1'−2C2'−7C3'−M6. Above all, although the non-network distributor got more information, when C1'=C2'=C3'=C′, t3 − t2 = t3 − t1 < 0. It is not sure for non-network channel to get the best profit due to entering market lately.

But comparing two kinds of distribution, one can see that the total distribution scale is greater in dynamic distribution than the static one, Δ(T)=M−(C1′+C2′−C3′)12. In the dynamic game model, the distribution scale and market size and product profit increases, which is better for whole industry than the static one. But if distribution profits of each channel are accounted separately, the dynamic strategy is benefit to network distribution channel, but not to non-network distribution channel.

6 Discussion

In the recent 10 years, with the rapid development of digital publishing industry, the market demand is growing steadily. In the early process of industry development, construction of the network distribution channel is of high cost, the distributor can gain more profit in the benefit proportion than content distributors. When distribution proportion is relatively fixed, industry profit increases only if distribution scale and market size are increasing. So, the digital publishing distributors should not only take the advantage in the competition between the enterprises in the industry chain, but also enlarge the distribution scale to increase the industry profits. There is also a competition relation between different enterprises in the same distribution channels, which will be researched in a future study.

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Received: 2016-12-30
Accepted: 2017-1-19
Published Online: 2017-4-26

© 2017 Li-ping Xu and Haiyan Chen.

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

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https://doi.org/10.1515/phys-2017-0022
Keywords for this article
Industry chain; Game-Theory; Distribution strategy
Creative Commons
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