Digital Distribution and the Prohibition of Resale Markets for Information Goods

Benjamin Shiller

No 59, Working Papers from Brandeis University, Department of Economics and International Business School

Abstract: An existing theoretical literature finds that frictionless resale markets cannot reduce profits of monopolist producers of perfectly durable goods. This paper starts by presenting logical arguments suggesting this finding does not hold for goods consumers tire of with use, implying the impact of resale is an empirical question. The empirical impact is then estimated in the market for video games, one of many markets in which producers may soon legally prevent resale by distributing their products digitally as downloads or streamed rentals. Estimation proceeds in two steps. First, demand parameters are estimated using a dynamic discrete choice model in a market with allowed resale, using data on new sales and used trade- ins. Then, using these parameter estimates, prices, profits, and consumer welfare are simulated under counterfactual environments. When resale is allowed, firms are unable to prevent their goods from selling for low prices in later periods. The ability to do so by restricting resale outright yields significant profit increases. Renting, however, does not raise profits as much due to a revenue extraction problem.

JEL-codes: K19 L00 M30 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2012-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP59.pdf First version, 2012 (application/pdf)

Related works:
Journal Article: Digital distribution and the prohibition of resale markets for information goods (2013)
Journal Article: Digital distribution and the prohibition of resale markets for information goods (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:brd:wpaper:59

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