For decades, Britannica was regarded as the standard reference encyclopedia. As recently as in the early 1990s, the thirty-two volumes were selling for $1,600.
Then came Microsoft.
In 1992, Microsoft acquired the rights to Funk & Wagnall and used its content to create Encarta, a CD rich-media encyclopedia. Encarta's initial list price was $49.95.
However, it was sold for even less than that to computer manufacturers who included Encarta with the computers they sold.
Britannica gradually saw its market erode. By 1996, its estimated sales were around $325 million, or about one half of its 1990 sales. It decided to enter the digital encyclopedia market as well. First, it started offering on-line access at a rate of $2,000 a year. In 1995, it entered the home market with an on-line subscription of $120 per year.
In 1996, the company started selling the CD version for $200.
By October 15, 2001, the britannica.com site cited a list-price of $59.95 (only $49.95 after mail-in rebate) for Encyclopedia Britannica 2002 Deluxe Edition CD-ROM. The thirty-two volume set still sells for a hefty $1,295. encarta.msn.com, in turn, charges $74.95 for the Encarta Reference Library 2002.

(a) Are the Britannica on paper and the Britannica on CD close substitutes? What about the Britannica on CD and the Encarta on CD?
(b) What would you have done differently if you were at the helm of Britannica?
(c) Can you think of other similar situations?