Pricing Under the Threat of Piracy: Flexibility and Platforms for Digital Goods

23 Pages Posted: 9 Nov 2011

See all articles by Dirk Bergemann

Dirk Bergemann

Yale University - Cowles Foundation - Department of Economics; Yale University - Cowles Foundation

Thomas M. Eisenbach

Federal Reserve Banks - Federal Reserve Bank of New York

Joan Feigenbaum

Yale University - Department of Computer Science; AT&T - Research Department

Scott Shenker

University of California, Berkeley - Department of Electrical Engineering & Computer Sciences (EECS)

Date Written: November 8, 2011

Abstract

We consider the optimal design of flexible use in a digital-rights-management policy for a digital good subject to piracy. Consumers can acquire the digital good either as a licensed product or as an unlicensed copy. The ease of access to unlicensed copies is increasing in the flexibility accorded to licensed copies. The content provider has to trade off consumers' valuation of a licensed copy against the sales lost to piracy.

We enrich the basic model by introducing a "secure platform" that is required to use the digital good. We show that the platform allows for the socially optimal provision of flexibility for the digital good but only if both are sold by an integrated firm.

Keywords: Digital goods, Digital rights management, Platform, Flexibility, Piracy

JEL Classification: C79, D42, L15

Suggested Citation

Bergemann, Dirk and Eisenbach, Thomas M. and Feigenbaum, Joan and Shenker, Scott, Pricing Under the Threat of Piracy: Flexibility and Platforms for Digital Goods (November 8, 2011). Cowles Foundation Discussion Paper No. 1834. Available at SSRN: https://ssrn.com/abstract=1956576

Dirk Bergemann (Contact Author)

Yale University - Cowles Foundation - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
203-432-3592 (Phone)
203-432-2128 (Fax)

HOME PAGE: http://www.econ.yale.edu/~dirk/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Thomas M. Eisenbach

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6089 (Phone)

HOME PAGE: http://teisenbach.github.io/

Joan Feigenbaum

Yale University - Department of Computer Science ( email )

Box 208285
New Haven, CT 06520-8285
United States
203-432-6432 (Phone)
203-432-0593 (Fax)

HOME PAGE: http://cs-www.cs.yale.edu/homes/jf/home.html

AT&T - Research Department ( email )

180 Park Ave.
Room C203
Florham Park, NJ 07932-0971
United States

Scott Shenker

University of California, Berkeley - Department of Electrical Engineering & Computer Sciences (EECS) ( email )

Berkeley, CA 94720-1712
United States
(415) 812-4840 (Phone)

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