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Pricing under the Threat of Piracy: Flexibility and Platforms for Digital Goods

Author

Listed:
  • Dirk Bergemann

    (Cowles Foundation, Yale University)

  • Thomas Eisenbach

    (Research Group, Federal Reserve Bank of New York)

  • Joan Feigenbaum

    (Dept. of Computer Science, Yale University)

  • Scott Shenker

    (ICSI and Dept. of Electrical Engineering and Computer Science, University of California, Berkeley)

Abstract

We consider the optimal design of flexible use in a digital-rights-management policy for a digital good subject to piracy. Consumers can acquire the digital good either as a licensed product or as an unlicensed copy. The ease of access to unlicensed copies is increasing in the flexibility accorded to licensed copies. The content provider has to trade off consumers' valuation of a licensed copy against the sales lost to piracy. We enrich the basic model by introducing a "secure platform" that is required to use the digital good. We show that the platform allows for the socially optimal provision of flexibility for the digital good but only if both are sold by an integrated firm.

Suggested Citation

  • Dirk Bergemann & Thomas Eisenbach & Joan Feigenbaum & Scott Shenker, 2011. "Pricing under the Threat of Piracy: Flexibility and Platforms for Digital Goods," Cowles Foundation Discussion Papers 1834, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:1834
    as

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    File URL: https://cowles.yale.edu/sites/default/files/files/pub/d18/d1834.pdf
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    References listed on IDEAS

    as
    1. Rob, Rafael & Waldfogel, Joel, 2006. "Piracy on the High C's: Music Downloading, Sales Displacement, and Social Welfare in a Sample of College Students," Journal of Law and Economics, University of Chicago Press, vol. 49(1), pages 29-62, April.
    2. Bakos, Yannis & Brynjolfsson, Erik & Lichtman, Douglas, 1999. "Shared Information Goods," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 117-155, April.
    3. Liebowitz, S J, 1985. "Copying and Indirect Appropriability: Photocopying of Journals," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 945-957, October.
    4. Arun Sundararajan, 2004. "Managing Digital Piracy: Pricing and Protection," Information Systems Research, INFORMS, vol. 15(3), pages 287-308, September.
    5. Takeyama, Lisa N, 1994. "The Welfare Implications of Unauthorized Reproduction of Intellectual Property in the Presence of Demand Network Externalities," Journal of Industrial Economics, Wiley Blackwell, vol. 42(2), pages 155-166, June.
    6. Kathleen Reavis Conner & Richard P. Rumelt, 1991. "Software Piracy: An Analysis of Protection Strategies," Management Science, INFORMS, vol. 37(2), pages 125-139, February.
    7. Hal R. Varian, 2000. "Buying, Sharing and Renting Information Goods," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 473-488, December.
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    Cited by:

    1. Jin-Hyuk Kim & Tin Cheuk Leung, 2013. "Quantifying the Impacts of Digital Rights Management and E-Book Pricing on the E-Book Reader Market," Working Papers 13-03, NET Institute.
    2. Kim, Jin-Hyuk & Leung, Tin Cheuk, 2021. "Eliminating digital rights management from the E-book market," Information Economics and Policy, Elsevier, vol. 57(C).

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    More about this item

    Keywords

    Digital goods; Digital rights management; Platform; Flexibility; Piracy;
    All these keywords.

    JEL classification:

    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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