Music Downloads and the Flip Side of Digital Rights Management

Marketing Science, Vol. 30, No. 6, p. 1011, November-December 2011

17 Pages Posted: 10 May 2012

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: October 10, 2011

Abstract

The ability to digitize information goods such as music and movies and the growing accessibility of the Internet has led to the emergence of a new class of retailers that specialize in digital downloads. The digital retailers have changed the dynamics of the information goods distribution channel. The competition between online and traditional retailers has led to interesting pricing policies. Online retailers (e.g., iTunes Store) tend to prefer uniform pricing where all "products" in the same category (e.g. "New Releases") carry a single price, while traditional retailers do not have a policy of uniform prices. It is important to understand why one retailer should choose a single, uniform price and what impact it has on the competing retailer who chooses multiple prices. I focus specifically on the impact that single price policy adopted by digital retailer has on the traditional retailer. I also analyze the choice of uniform vs. differentiated pricing by modeling the competition between online and traditional retailers for vertically differentiated information goods. Importantly, I demonstrate how the asymmetric equilibrium we observe in the market today can change systematically with the nature of competition between the retailers.

Keywords: Information Goods, Uniform Pricing, Price Discrimination, Traditional and Online Channels

Suggested Citation

Cohen-Vernik, Dinah and Purohit, Devavrat and Desai, Preyas S., Music Downloads and the Flip Side of Digital Rights Management (October 10, 2011). Marketing Science, Vol. 30, No. 6, p. 1011, November-December 2011, Available at SSRN: https://ssrn.com/abstract=2055872

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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