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Digital Rights Management and Technological Tying

This paper analyzes DRM-based technological tying, where the content and hardware form a system. A closed DRM system makes the legal content incompatible with a rival’s hardware, whose users must then obtain illegal copies. The main finding is that the tying firm gains market power in a competitive hardware market and invests in product upgrades at a later stage. Welfare implications of the policy that requires an open DRM system are also discussed.

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File URL: http://www.netinst.org/Kim_08-05.pdf
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Paper provided by NET Institute in its series Working Papers with number 08-05.

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Length: 43 pages
Date of creation: Sep 2008
Date of revision: Sep 2008
Handle: RePEc:net:wpaper:0805
Contact details of provider: Web page: http://www.NETinst.org/

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  1. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
  2. Kim Jin-Hyuk, 2007. "Strategic Use of Copyright Protection to Deter Entry," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-19, September.
  3. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
  4. Jeffrey Church & Neil Gandal, 2000. "Systems Competition, Vertical Merger, and Foreclosure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(1), pages 25-51, 03.
  5. Dennis W. Carlton & Michael Waldman, 2005. "Tying, Upgrades, and Switching Costs in Durable-Goods Markets," NBER Working Papers 11407, National Bureau of Economic Research, Inc.
  6. Tandon, Pankaj, 1982. "Optimal Patents with Compulsory Licensing," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 470-86, June.
  7. Drew Fudenberg & Jean Tirole, 1997. "Upgrades, Trade-Ins and BuyBacks," Harvard Institute of Economic Research Working Papers 1803, Harvard - Institute of Economic Research.
  8. 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.
  9. Yooki Park & Suzanne Scotchmer, 2004. "Digital Rights Management and the Pricing of Digital Products," Working Papers 04-09, NET Institute, revised Oct 2004.
  10. Novos, Ian E & Waldman, Michael, 1984. "The Effects of Increased Copyright Protection: An Analytic Approach," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 236-46, April.
  11. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-59, September.
  12. Johnson, William R, 1985. "The Economics of Copying," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 158-74, February.
  13. 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.
  14. Arun Sundararajan, 2003. "Managing Digital Piracy: Pricing, Protection and Welfare," Law and Economics 0307001, EconWPA.
  15. Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 52-71, Spring.
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