Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society
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Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

Competition among Originals, Managed Originals and Illegal Copies and Social Welfare

Vol.20, No.1, March , 60–102


English Version |  Korean Version
  •   (Korea Information Society Development)

  •   (Chung-Ang University)

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Abstract  

DRM (Digital Rights Management) refers to access control technologies for copyright holders to limit usage of digital contents or devices and to prevent the unauthorized use of them. We consider an information good market in which DRM-free originals (simply, ``original''), originals controlled by DRM (simply, ``managed originals'') and illegal copies are traded. We model a monopolistic copyright holder's behavior of setting the prices of an original and a managed original as well as of determining the protection level of DRM in this market, and identify and analyze the market equilibrium. We also study the welfare effect of the introduction of managed originals into the market. In the equilibrium, the copyright holder selects a protection level of DRM which equates the quality of a managed original and that of an illegal copy, and sets the price of a managed original to be equal to the unit copy cost. The introduction of managed originals into the market raises the price of an original. If the copy cost is ``relatively'' low, the introduction of managed originals enhances the social welfare. Otherwise, it reduces the social welfare.


Keywords
   Information good, DRM, Social welfare

JEL classification codes
   D42, L15, L86
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