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On the optimal level of protection in DRM

  • Ahn, Illtae
  • Shin, Ilsoon
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    We examine the optimal level of Digital Rights Management when stronger DRM makes copyright infringement more difficult, but at the cost of decreased value for legal users. We find that DRM-free is profit-maximizing when copyright enforcement is strong or free-rider problems are severe. Otherwise, DRM is optimal for the firm. Even in the latter case, copyright enforcement and DRM are substitutes, and, thus, stronger copyright enforcement by the government reduces the usage of inefficient DRM. We also find that, although stronger copyright enforcement may raise the price of the legitimate product, consumers often benefit overall due to the decreased use of DRM.

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    File URL: http://www.sciencedirect.com/science/article/B6V8J-5166648-1/2/149993b899afe417767d316ca5ed507c
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    Article provided by Elsevier in its journal Information Economics and Policy.

    Volume (Year): 22 (2010)
    Issue (Month): 4 (December)
    Pages: 341-353

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    Handle: RePEc:eee:iepoli:v:22:y:2010:i:4:p:341-353
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505549

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    1. Yoon, Kiho, 2007. "On the impact of digital music distribution," IIR Working Paper 07-09, Institute of Innovation Research, Hitotsubashi University.
    2. Yooki Park & Suzanne Scotchmer, 2005. "Digital Rights Management and the Pricing of Digital Products," Levine's Bibliography 784828000000000402, UCLA Department of Economics.
    3. Liebowitz, Stan J, 2006. "File Sharing: Creative Destruction or Just Plain Destruction?," Journal of Law and Economics, University of Chicago Press, vol. 49(1), pages 1-28, April.
    4. Peitz, Martin & Waelbroeck, Patrick, 2006. "Piracy of digital products: A critical review of the theoretical literature," Information Economics and Policy, Elsevier, vol. 18(4), pages 449-476, November.
    5. David S. Evans & Andrei Hagiu & Richard Schmalensee, 2006. "Invisible Engines: How Software Platforms Drive Innovation and Transform Industries," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262050854, June.
    6. Besen, Stanley M & Kirby, Sheila Nataraj, 1989. "Private Copying, Appropriability, and Optimal Copying Royalties," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages 255-80, October.
    7. Bae, Sang Hoo & Choi, Jay Pil, 2006. "A model of piracy," Information Economics and Policy, Elsevier, vol. 18(3), pages 303-320, September.
    8. Paul Belleflamme, 2002. "Pricing Information Goods in the Presence of Copying," Working Papers 463, Queen Mary University of London, School of Economics and Finance.
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