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
1
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
Sec-
Vernik,Purohit,andDesai:MusicDownloadsandtheFlipSideofDRM
MarketingScience,ArticlesinAdvance,pp.1–17,©2011INFORMS
3
ormusicwebsites(e.g.,/).2Iftheychoosetoobtainanillegalcopy,theyincuramoral,orapsychological,costaswellasthesearchcostof ndingthemusicalbum(Hennig-Thurauetal.2007).Inparticular,consumersmayfeelguiltyaboutperforminganillegalorunethicalactionorfeelthethreatofembarrassmentorshameassociatedwithbeingcaught.Boththeseeffectsdecreasethelike-lihoodofconsumersengaginginpiratingactivity(SinhaandMandel2008).Finally,onamorepracti-callevel,iftheychoosetopirate,consumersneedtoers.The lemaynotbeermissions@.
restrictions.In§4,wecomparetheeffectofremovingDRMrestrictionsontherecordlabelandtheretail-ers.In§5,werelaxsomeoftheassumptionsofourgeneralmodel,andin§6,weconcludethepaperandsuggestsomedirectionsforfutureresearch.
2.
Wedevelopamodelinwhicharecordlabeldis-tributesmusicthroughmultipleretailersandcon-sumershavethechoiceofeitherbuyingorpiratingModel