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Optimal Digital Rights Management with Uncertain Piracy

Optimal Digital Rights Management with Uncertain Piracy ABSTRACT Many firms that sell digital copies of copyrighted materials online face a common dilemma: the use of digital rights management (DRM) to impede pirates can impose restrictions on legitimate use. We introduce a two‐period model in which the use of DRM in the first period affects the probability that a consumer finds a pirated copy in the second period; the threat of legal action reduces consumers’ consumption of pirated copies; and firms choose whether to sell, and at what prices, either strongly or weakly DRM‐protected products, or both. Furthermore, we incorporate the role of uncertainty concerning future levels of piracy. Using a two‐period model with uncertainty, we investigate a firm's optimal DRM strategies and present the optimal pricing strategy as well as product launch strategy under different market conditions. We find that one important characteristic of the optimal strategy is that it is optimal to maintain the same product line configuration strategy for both periods. We also characterize the conditions under which each strategy is optimal. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Decision Sciences Wiley

Optimal Digital Rights Management with Uncertain Piracy

Sun, Daewon; Easley, Robert; Kim, Byung Cho
Decision Sciences , Volume 46 (1) – Feb 1, 2015
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References (47)

Publisher
Wiley
Copyright
Copyright © 2015 Decision Sciences Institute
ISSN
0011-7315
eISSN
1540-5915
DOI
10.1111/deci.12120
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT Many firms that sell digital copies of copyrighted materials online face a common dilemma: the use of digital rights management (DRM) to impede pirates can impose restrictions on legitimate use. We introduce a two‐period model in which the use of DRM in the first period affects the probability that a consumer finds a pirated copy in the second period; the threat of legal action reduces consumers’ consumption of pirated copies; and firms choose whether to sell, and at what prices, either strongly or weakly DRM‐protected products, or both. Furthermore, we incorporate the role of uncertainty concerning future levels of piracy. Using a two‐period model with uncertainty, we investigate a firm's optimal DRM strategies and present the optimal pricing strategy as well as product launch strategy under different market conditions. We find that one important characteristic of the optimal strategy is that it is optimal to maintain the same product line configuration strategy for both periods. We also characterize the conditions under which each strategy is optimal.

Journal

Decision Sciences – Wiley

Published: Feb 1, 2015

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