Music Downloads and the Flip Side of Digital Rights Management

Dinah A. Vernik (), Devavrat Purohit () and Preyas S. Desai ()
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Dinah A. Vernik: Jesse H. Jones Graduate School of Business, Rice University, Houston, Texas 77005
Devavrat Purohit: Fuqua School of Business, Duke University, Durham, North Carolina 27708
Preyas S. Desai: Fuqua School of Business, Duke University, Durham, North Carolina 27708

Marketing Science, 2011, vol. 30, issue 6, 1011-1027

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. Furthermore, 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: game theory; competitive analysis; piracy; entertainment marketing; digital music (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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