Open Access Journal Article

Protection in DRM and pricing strategies for digital products considering quality degradation

by Linlan Zhang a,* orcid  and  Yu Zhang a
a
School of Business, Hubei University, Wuhan, China
*
Author to whom correspondence should be addressed.
EAL  2023 2(1):13; https://doi.org/10.58567/eal02010003
Received: 16 February 2023 / Accepted: 8 March 2023 / Published Online: 21 March 2023
View Full-Text
Download PDF

Abstract

In this paper, we develop a model in which a monopolistic firm manufactures and sells a digital product, by incorporating digital rights management (DRM), quality degradation of pirated products, and government copyright enforcement into the consumer’s utility function. We determine the monopolist’s optimal pricing strategies and the appropriate DRM protection level through mathematical deduction. Our results show that when the government copyright enforcement is moderate and the quality of pirated products is relatively high, implementing a DRM system is optimal for the monopolist. However, in most other cases, DRM-free is better for the monopolist. This result may explain why DRM is not very popular in some industries. Our results suggest that choosing the right price, focusing on content innovation, and weakening DRM protection may be a better strategy for firms now. The results also indicate that DRM-free may be more prominent in the digital music industry than in the software and video games industries.

Keywords: Pricing; DRM-free; Digital piracy; Quality degradation;
Copyright: © 2023 by Zhang and Zhang. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

Share and Cite

ACS Style
Zhang, L.; Zhang, Y. Protection in DRM and pricing strategies for digital products considering quality degradation. Economic Analysis Letters, 2023, 2, 13. https://doi.org/10.58567/eal02010003
AMA Style
Zhang L, Zhang Y. Protection in DRM and pricing strategies for digital products considering quality degradation. Economic Analysis Letters; 2023, 2(1):13. https://doi.org/10.58567/eal02010003
Chicago/Turabian Style
Zhang, Linlan; Zhang, Yu 2023. "Protection in DRM and pricing strategies for digital products considering quality degradation" Economic Analysis Letters 2, no.1:13. https://doi.org/10.58567/eal02010003
APA style
Zhang, L., & Zhang, Y. (2023). Protection in DRM and pricing strategies for digital products considering quality degradation. Economic Analysis Letters, 2(1), 13. https://doi.org/10.58567/eal02010003

Article Metrics

Article Access Statistics

References

  1. Avinadav, T., Chernonog, T., Perlman, Y. (2014). Analysis of protection and pricing strategies for digital products under uncertain demand. International Journal of Production Economics 158 (1), 54-64. https://doi.org/10.1016/j.ijpe.2014.07.021
  2. Guo, L. and Meng, X. (2015). Digital content provision and optimal copyright protection. Management Science 61(5), 108-112. https://doi.org/10.1287/mnsc.2014.1972
  3. Holm, H. J. (2003). Can economic theory explain piracy behavior?. Topics in Economic Analysis & Policy 3(3), 1082-1082. https://doi.org/10.2202/1538-0653.1082
  4. Huang, Y. S., Lin, S. H., Fang, C. C. (2017). Pricing and coordination with consideration of piracy for digital goods in supply chains. Journal of Business Research, 77(8), 30-40. https://doi.org/10.1016/j.jbusres.2017.03.023
  5. Kogan, K., Ozinci, Y., Perlman,Y. (2013). Containing piracy with product pricing, updating and protection investments. International Journal of Production Economics 144 (2), 468–478. https://doi.org/10.1016/j.ijpe.2013.03.018
  6. Li, Y. M., Lin, C. H., 2009. Pricing schemes for digital content with DRM mechanisms. Decision Support Systems 47(4), 528-539. https://doi.org/10.1016/j.dss.2009.05.015
  7. Luo, C., Leng, M., Tian, X., et al. (2017). Pricing the digital version of a book: wholesale vs. agency models. Information Systems & Operational Research 55(6), 1-34. https://doi.org/10.1080/03155986.2017.1348570
  8. Peitz, M., Waelbroeck, P. (2006). Piracy of digital products: A critical review of the theoretical literature. Information Economics & Policy 18(4), 449-476. https://doi.org/10.1016/j.infoecopol.2006.06.005
  9. Simons, H. (2022). We asked, you told us: A ton of you pirated content in 2022. URL. https://www.androidauthority.com/pirate-content-2022-poll-results-3150192/.
  10. Sundararajan, A. (2004). Managing digital piracy: pricing and protection. Information Systems Research 15(3), 287–308. https://doi.org/10.1287/isre.1040.0030
  11. Wu, D., Nan, G., Li, M. (2020). Optimal piracy control: should a firm implement digital rights management?. Information Systems Frontiers 22(3), 947-960. https://doi.org/10.1007/s10796-019-09907-z
  12. Zhang, L., Peng, X. (2020). Analysis of optimal strategies in a two-echelon digital products supply chain considering consumer types. National Academy Science Letters 43(5), 449–451. https://doi.org/10.1007/s40009-020-00891-6
  13. Zhang, L., Fan L., Peng H., et al. (2021). Optimal piracy control and pricing strategies considering quality degradation: The effects of policy instruments. Electronic Commerce Research and Applications 48, 101072. https://doi.org/10.1016/j.elerap.2021.101072