Music Downloads and the Flip Side of DRM Protection

43 Pages Posted: 27 Mar 2009 Last revised: 24 May 2022

See all articles by Dinah Cohen-Vernik

Dinah Cohen-Vernik

Rice University - Jones Graduate School of Business

Debu Purohit

Duke University - Fuqua School of Business

Preyas S. Desai

Duke University - Fuqua School of Business

Date Written: July 15, 2011

Abstract

Digital Rights Management (DRM) is an important yet controversial issue in the information goods markets. Although DRM is supposed to help copyright owners by protecting digital content from illegal copying or distribution, it is controversial because DRM imposes restrictions on even legal users, and there are many industry practitioners who believe that the industry would be better off without DRM. In this paper, we model consumers’ utilities and their incentives to purchase legal products versus pirate illegal ones. This allows us to endogenize the level of piracy and understand how it is influenced by the presence or absence of DRM. Our analysis suggests that, counterintuitively, download piracy might decrease when the firm allows legal DRM-free downloads. Further, we find that a decrease in piracy does not guarantee an increase in firm profits and that that copyright owners do not always benefit from making it harder to copy music illegally. By analyzing the competition among the traditional retailer, the digital retailer and pirated sources of information goods, we get a better understanding of the competitive forces in the market and provide insights into the role of digital rights management.

Keywords: Competitive strategy, Game theory, Piracy, Information goods, Digital goods

Suggested Citation

Cohen-Vernik, Dinah and Purohit, Devavrat and Desai, Preyas S., Music Downloads and the Flip Side of DRM Protection (July 15, 2011). Available at SSRN: https://ssrn.com/abstract=1369386 or http://dx.doi.org/10.2139/ssrn.1369386

Dinah Cohen-Vernik (Contact Author)

Rice University - Jones Graduate School of Business ( email )

Houston, TX 77005
United States

Devavrat Purohit

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

Preyas S. Desai

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

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