Working Paper: NBER ID: w11532
Authors: Yooki Park; Suzanne Scotchmer
Abstract: As it becomes cheaper to copy and share digital content, vendors are turning to technical protections such as encryption. We argue that if protection is nevertheless imperfect, this transition will generally lower the prices of content relative to perfect legal enforcement. However, the effect on prices depends on whether the content providers use independent protection standards or a shared one, and if shared, on the governance of the system. Even if a shared system permits content providers to set their prices independently, the equilibrium prices will depend on how the vendors share the costs. We show that demand-based cost sharing generally leads to higher prices than revenue-based cost sharing. Users, vendors and the antitrust authorities will typically have different views on what capabilities the DRM system should have. We argue that, when a DRM system is implemented as an industry standard, there is a potential for "collusion through technology."
Keywords: No keywords provided
JEL Codes: L13; L14; L15; K21; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Strength of protection (D18) | Content pricing (D49) |
| Cost-sharing arrangements (D16) | Pricing strategies of vendors (D49) |
| Demand-based cost sharing (D16) | Higher prices (D49) |
| Revenue-based cost sharing (D26) | Lower prices (D49) |
| Threat of hacking (K24) | Pricing (D49) |
| Transition from legal to technical protections (K24) | Lower content prices (D49) |