Digital Rights Management and the Pricing of Digital Products
AbstractAs it becomes cheaper to copy and share digital content, vendors are turning to technical protections such as encryption. We argue that if protection is nevertheless imperfect, this transition will generally lower the prices of content relative to perfect legal enforcement. However, the effect on prices depends on whether the content providers use independent protection standards or a shared one, and if shared, on the governance of the system. Even if a shared system permits content providers to set their prices independently, the equilibrium prices will depend on how the vendors share the costs. We show that demand-based cost sharing generally leads to higher prices than revenue-based cost sharing. Users, vendors and the antitrust authorities will typically have different views on what capabilities the DRM system should have. We argue that, when a DRM system is implemented as an industry standard, there is a potential for "collusion through technology."
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Date of creation: Aug 2005
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Other versions of this item:
- Yooki Park & Suzanne Scotchmer, 2004. "Digital Rights Management and the Pricing of Digital Products," Working Papers 04-09, NET Institute, revised Oct 2004.
- Yooki Park & Suzanne Scotchmer, 2005. "Digital Rights Management and the Pricing of Digital Products," Levine's Bibliography 784828000000000402, UCLA Department of Economics.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-08-13 (All new papers)
- NEP-CUL-2005-08-13 (Cultural Economics)
- NEP-LAW-2005-08-13 (Law & Economics)
- NEP-MIC-2005-08-13 (Microeconomics)
- NEP-REG-2005-08-13 (Regulation)
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