Music Downloads and the Flip Side of Digital Rights Manageme(2)

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OtherdigitalgoodsalsohavesomeformofDRM—amoviepurchasedanddownloadedfromtheiTunesstorecanonlybeplayedonanauthorizedcomputer,andbookspurchasedfortheKindlecannotbereadonanyotherdevice.Alltheseconstraintsaredesignedtoprotectdigitalproductsfromunauthorizedcopyinganddistributionandthusreducethelevelofpiracy.1TheproponentsofDRMbelievethatimposingDRMrestrictionsleadstoadecreaseinpiracythatinturnleadstohigherpro tsforthecopyrightowners.

UsingDRMtocombatpiracyhasmanycritics,suchVernik,Purohit,andDesai:MusicDownloadsandtheFlipSideofDRM

MarketingScience,ArticlesinAdvance,pp.1–17,©2011INFORMS

ofpiracycanstillgodownwhenthe rmeliminatesDRM.Thisresultstemsfromthecompetitionamongallthreeformats—legaldownloads,traditionalCDs,andillegalpirating.Wealso ndthattherecordlabeldoesnotnecessarilybene tfrommakingithardertocopymusicillegally.Insomecases,therecordlabelmaybene tfrommakingpiracyeasier.Saiddiffer-ently,therecordlabelcan nditoptimaltohavesomelevelofpiracy.

Theextantliteratureinthisareaalsochallengestheconventionalbeliefthatpiracydecreasesprof-ers.The lemaynotbeermissions@.

bpircotassbylemBillucsilomaywithGatescurrentandDRMCorysolutionsDoctorow.isthatAalthoughcentralprob-optimposemakeesilbhofcostspiracyonlegalmoreuserscostlywhoandhavedif cult,theytheyalsotalrestricteddoinganythingignvaiuser,productillegal.willonlyMoreover,bepurchasedbecausenointentionsbyaDRM-adreathedgaerwillpriceinaandperversesufferfromsense,onlythelegalusersalegalpaymsnotsnioiopponentshavenotbeDRMaffectedtherestrictions;illegalusersrestrictionsbecausethepiratedproductdoeshtscimproveiehuwqincreasetheofDRM(Jobs2007).Asaresult,valueargueofthateliminatingDRMwill,yindustrytheirwillingnessthetoproductpay,andforthuslegalincreaseusers,nnoaisrdnweToaddresspro ts.

veesforecensvicesbothmodeltheproblemfacingthemusicindustry,traditionalamusicdistributionchannelthatallowsavaebedlAPbooks,readilysuchadaptedasiTunes.CDretailersanddownloadser-toAlthoughthisframeworkcanne.focusesvideos),itissisontheformusicsimplicityotherinformationgoods(e.g.,industry.ofexposition,thispaperelc’sreitheramusicitorAhditionaladownloadablealbumthatformatisavailableThe(e.g.,MP3toproductconsumersforsale le)oratra-intusadownloadable(i.e.,CD)ihteorformatformat.Furthermore,musicintheohttencesDRM-free.tghnderivefordownloadedConsumerscanmusichavebeeitherDRM-restrictedversusheterogeneousCDs,andprefer-giidrrestricteddifferentutilityfromDRM-freeandDRM-theyyulpciTunes-likemusic.Arecordlabeldistributesmusicviaonicersse,dtimusicsellingloshbechooseortosteal,purchaseCDs.downloadConsumersservicesandtraditionalretail-theythecanlegallydownloadthecanCDgetfromapiratedaretailer;copy,butiftheytheySwalsoMrReillegalbearhOtositycopy.amoralFinally,andconsumersatechnicaldiffercostinofobtaininganFNyIna:piracyOurtoengageanalysisinpiracy.

theirpropen-thngoDRM-freemightdecreasesuggeststhatundercertainconditionsirdtrastypetosDRMtothedownloads.viewThiswhen ndingthe rmisinallowsstarklegalcon-CopDRMimposeswillincreaseofDRMproponentsthatremovingnoconstraintspiracy.Inonparticular,legalusers,eventhewhenlevel

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NotethatifDRMlimitsinterformatoperability,italsomakesthemarketlesscompetitive.

itability,DRMofreliesthetechnologiesbutindoingso,itsimplyassumesthatresearchthatreduceshowsapiracy.bene cialInparticular,mostitiesonthepresenceofpositivedemandeffectofexternal-piracyinstalledsuchabasethat(Xieconsumers’andSirbuutilityincreaseswiththepresencelimitedamountofpiracyis1995).agoodThus,ideatoleratingRumelt1998),1991,ofstrongTakeyamanetworkexternalities(Connerinandthesiongrouppricing(Galbreth1994,etSliveal.2010),andBernhardtorcontexteffectspiracyof(Givonetal.1995).Furthermore,indiffu-thenismaffect(Chellappacanexperiencebeviewedgoods,suchasmusicorbooks,andShivenduasaproduct2005)samplingandpositivelymecha-perceptionpro tsanofthroughtheproductlettingconsumerslearnthetrueinincreasea“informationcompetitiveadvantage” t,(Villas-Boasi.e.,through2006).creatingAlso,theirlevelsituation,ofinnovationpiracycanlead rmstoandInpiratetheirthisincentivespaper,wemicromodel(Jainconsumers’2008).

utilitieslevelillegalones.Thistopurchaseallowsuslegaltoproductsversusbyofpiracyandunderstandhowendogenizeitisin uencedthedevelop,thepresenceorabsenceofDRM.Inthemodelweuct,piratesbutthe rmcanmakeithardertocopytheprod-bypiracyanlyzingbutthatalsoimposeshowonDRMtheconstraintslegitimatenotonlyonpotentialaffectsnotbuyers.onlytheTherefore,leveltheofcompetingbutalso rms,thecompetitiveofwegetamoreinteractioncompletebetweenpicturesourcesFurthermore,themarket.

theextantliteratureoneofmusic,suchasdownloadstreatsandallCDs,legalassourcesmonolithiclegalorpirates.productIncontrast,thatcompetesagainstillegalagainstsources,suchasdownloadswenoteorCDs,thatalthougheachtheother.piratedThus,versions,bytheyalsocompetecompeteagainstmusic,traditionalretailer,analyzingthedigitaltheretailer,competitionandpiratedamongtiveliterature,forcesweingetabetterunderstandingofthecompeti-allwetheendogenizemarket.Asconsumers’aresult,unliketheearlierweThetherestmajorofsourceschoicesamongthisofmusic.

tionlay3analyzesoutthemodelpaperisorganizedasfollows.In§2,theconsequencesandrelatedofassumptions.removingDRM

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