2013 Volume 6 Issue 1 Pages 1-15
Under the longtime protection by the resale price maintenance and the consignment sale contracts with the book wholesalers and bookstores, Japanese publishing companies have long relied on their experience and intuition to determine the number of print runs for their publications. As a result, many Japanese publishers are facing the diffculties arising from the increasing number of unsold books returned to the publishers under the uncertainty of the book demand. This paper is intended to solve the problem for the publishers to .nd out the optimum strategy for print runs under the uncertainty to improve their profit management. We firstly analyze the market data for book demand to estimate the probability distribution and find out that the book demand in a certain category observes the log-normal distribution. Then we derive value functions to represent publisher’s profit for a publication by incorporating the value of the call options for the publisher to reprint it whenever they see good demand exceeding the initial print run. We take the expectation of the value functions under the probability density and analytically derive the solution to the expectation. The optimum strategy for print runs can be obtained through the process to maximize the expected profit of the publisher. Finally we apply our model to the actual market data and prove that our model can significantly improve publisher’s profit management in comparison with those relying on their experience and intuition.
