NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Yooki Park

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Working Papers

August 2005Digital Rights Management and the Pricing of Digital Products
with Suzanne Scotchmer: w11532
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 ca...

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