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On the optimal level of protection in DRM

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  • Ahn, Illtae
  • Shin, Ilsoon

Abstract

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.

Suggested Citation

  • Ahn, Illtae & Shin, Ilsoon, 2010. "On the optimal level of protection in DRM," Information Economics and Policy, Elsevier, vol. 22(4), pages 341-353, December.
  • Handle: RePEc:eee:iepoli:v:22:y:2010:i:4:p:341-353
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    References listed on IDEAS

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    1. Bae, Sang Hoo & Choi, Jay Pil, 2006. "A model of piracy," Information Economics and Policy, Elsevier, vol. 18(3), pages 303-320, September.
    2. Illtae Ahn & Kiho Yoon, 2009. "On the Impact of Digital Music Distribution," CESifo Economic Studies, CESifo, vol. 55(2), pages 306-325, June.
    3. David S. Evans & Andrei Hagiu & Richard Schmalensee, 2008. "Invisible Engines: How Software Platforms Drive Innovation and Transform Industries," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550687, January.
    4. Yooki Park & Suzanne Scotchmer, 2004. "Digital Rights Management and the Pricing of Digital Products," Working Papers 04-09, NET Institute, revised Oct 2004.
    5. 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 255-280, October.
    6. Paul Belleflamme, 2002. "Pricing Information Goods in the Presence of Copying," Working Papers 463, Queen Mary University of London, School of Economics and Finance.
    7. 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.
    8. 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.
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    Citations

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    Cited by:

    1. Kresimir Zigic & Jiri Strelicky & Michael Kunin, 2014. "How Does Public IPR Protection Affect its Private Counterpart? Copyright and the Firms' Own IPR Protection in a Software Duopoly," CERGE-EI Working Papers wp518, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    2. Waters, James, 2015. "Welfare implications of piracy with dynamic pricing and heterogeneous consumers," European Journal of Operational Research, Elsevier, vol. 240(3), pages 904-911.
    3. Avinadav, Tal & Chernonog, Tatyana & Perlman, Yael, 2014. "Analysis of protection and pricing strategies for digital products under uncertain demand," International Journal of Production Economics, Elsevier, vol. 158(C), pages 54-64.
    4. Kresimir Zigic & Jiri Strelicky & Michael Kunin, 2015. "Modeling Software Piracy Protection: Monopoly versus Duopoly," CERGE-EI Working Papers wp551, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

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