The Effect of Piracy and Digital Rights Management on Vertically Related Content Industries

Bae Sang Hoo, Kim Myungsup and Yoo Kyeongwon ()
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Bae Sang Hoo: Clark University, 950 Main St., Worcester, MA 01610, USA
Kim Myungsup: University of North Texas, 1155 Union Circle #311457, Denton, TX 76203-5017, USA
Yoo Kyeongwon: Sangmyung University, 7 Hongji-dong Chongro-gu, Seoul, Korea, Phone: +82 2 2287 5039, Fax: +82 2 2287 0059

Review of Network Economics, 2017, vol. 16, issue 1, 1-26

Abstract: The purpose of this paper is to investigate how digitalization affects vertically related content industries with the threat of piracy. We construct a model of vertical relationship where an upstream [a downstream] firm is considered as a content provider [a retailer]. Three business models are proposed depending on who has the right to implement digital rights management (DRM): a vertically-integrated entity, an upstream, and a downstream. First, we analyze how different modes of control on DRM affect the optimal prices and the level of copy protection. The results are dependent upon the different control modes of DRM and the degree of opportunistic behavior responding to increasing piracy costs. Second, we analyze the effect of two types of piracy depending on distribution channels (non-digital versus digital). Strengthening intellectual property rights (IPR) protection results in a price hike for both cases, while we have opposite changes in quantities depending on the types of piracy.

Keywords: copyright protection; digitalization; digital rights management; piracy; upstream-downstream (search for similar items in EconPapers)
JEL-codes: L13 L82 L86 O34 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1515/rne-2017-0035

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