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

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Author Info

  • 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.

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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1834.

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Length: 22 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:cwl:cwldpp:1834

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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

Related research

Keywords: Digital goods; Digital rights management; Platform; Flexibility; Piracy;

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References

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  1. Bakos, Yannis & Brynjolfsson, Erik & Lichtman, Douglas, 1999. "Shared Information Goods," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 117-55, April.
  2. Liebowitz, S J, 1985. "Copying and Indirect Appropriability: Photocopying of Journals," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 945-57, October.
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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.

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