European Journal of Law and Economics

, Volume 37, Issue 2, pp 277–297 | Cite as

Substituting piracy with a pay-what-you-want option: does it make sense?

Article

Abstract

Rather than tolerating piracy or increasing sanctions, an artist can release his product directly to consumers by allowing them to download it under a ‘pay-what-you-want’ online strategy. We show analytically that this strategy can (1) be more profitable than a strategy with perfect or imperfect intellectual property rights enforcement for the artist and (2) change the organization and allocation of added value between artists and publishers along the supply chain. This higher profit result is achieved through an increased demand for live performance and positive voluntary contributions of downloaders directly pocketed by the artist. Indeed, a ‘pay-what-you-want’ strategy allows artists to reduce piracy without using sanctions while benefiting from a strategic negotiation ‘weapon’ in the relationship with record labels. Moreover, consumers draw procedural utility from the way the product is delivered. Counter-intuitively, rather than advocating for elimination of conventional releases at posted prices, pay-what-you-want strategies may need them to remain successful. A brief case study of Radiohead’s experiment and anecdotal evidence are developed to support these theoretical insights. Some implications regarding the re-organization of the supply chain and property rights regime are drawn.

Keywords

Behavioral economics Free download Music Piracy 

JEL classification

M13 Q28 

References

  1. Anand, P. (2001). Procedural fairness in economic and social choice, evidence from a survey of voters. Journal of Economic Psychology, 22, 247–270.CrossRefGoogle Scholar
  2. Andreoni, J. (1990). Impure altruism and donations to public goods: A Theory of warm-glow giving. Economic Journal, 100, 464–477.CrossRefGoogle Scholar
  3. Bellemare, M. F., & Holmberg, A. M. (2009). The determinants of music piracy in a sample of college students working paper, http://ssrn.com/abstract=1481272, Visited on December, 23, 2009.
  4. Benz, M. B., Frey, S., & Stutzer, A. (2004). Introducing procedural utility, not only what but also how matters. Journal of Institutional and Theoretical Economics, 160, 377–401.CrossRefGoogle Scholar
  5. Bitzer, J., Schrettl, W., & Schröder, P. J. H. (2007). Intrinsic motivation in open source software development. Journal of Comparative Economics, 31, 160–169.CrossRefGoogle Scholar
  6. Burke, A. E. (2003). Music business. In R. Towse (Ed.), Handbooks of cultural economics (PP. 321–330). Chelterham: Edward Elgar.Google Scholar
  7. Castiglione, C. (2008). NIN Ghosts I–IV, Amazon’s Bestselling Album of 2008 Was Released Under A Creative Commons License! http://www.ccastig.com/2009/01/11/nin-ghosts-i-iv-amazon%E2%80%99s-bestselling-album-is-under-a-creative-commons-license/. Visited on April 25, 2009.
  8. Conner, K. R., & Rumelt, R. P. (1991). Software piracy: An analysis of protection strategies. Management Science, 37(2), 125–139.CrossRefGoogle Scholar
  9. Croson, R. T. A. (2007). Theories of commitment, altruism and reciprocity, evidence from linear public goods games. Economic Inquiry, 45, 199–216.CrossRefGoogle Scholar
  10. Croxson, K. (2007). Promotional piracy. Oxonomics, 2, 1–15.CrossRefGoogle Scholar
  11. Frey, B. S., & Stutzer, A. (2005). Beyond outcomes, measuring procedural utility. Oxford Economic Papers, 57, 90–111.CrossRefGoogle Scholar
  12. Gayer, A., & Shy, Oz. (2003). Copyright protection and hardware taxation. Information Economics and Policy, 15, 467–483.Google Scholar
  13. Gayer, A., & Shy, O. (2006). Publishers, artists, and copyright enforcement. Information Economics and Policy, 18, 374–384.CrossRefGoogle Scholar
  14. Gibson, O. (2007). Radiohead’s bid to revive music industry, pay what you like to download albums. The Guardian, 2 October, http://www.guardian.co.uk/media/2007/oct/02/ digitalmedia.musicnews. Visited on March 15, 2009.
  15. Gneezy, A., Gneezy, U., Nelson, L. D., & Brown. A. (2010). Shared social responsibility: A field experiment in pay-what-you-want pricing and charitable giving. Science, 5989(329), 325–327.Google Scholar
  16. Kim, J.-Y., Natter, M., & Spann, M. (2009). Pay-what-you-want—A new participative pricing mechanism. Journal of Marketing, 73(1), 44–58.CrossRefGoogle Scholar
  17. Kim, J.-Y., Natter, M., & Spann, M. (2010). Kish: Where customers pay as they wish. Review of Marketing Science, 8, Article 3, Available at: http://www.bepress.com/romsjournal/vol8/iss2/art3.
  18. Krueger, A. B. (2005). The economics of real superstars: The market for rock concerts in the material world. Journal of Labor Economics, 23(1), 1–30.CrossRefGoogle Scholar
  19. Kühn, K. (2009). London restaurants “Pay What You Want” scheme succeeds, chain leader, March 14: http://www.chainleader.com/article/386875-London_Restaurants_Pay_What_You_Want_Scheme_Succeeds.php: Visisted on March 30, 2009.
  20. Liebowitz, S. J. (2004). The elusive symbiosis, the impact of the radio on the record industry. Review of Economic Research on Copyright Issues, 1, 93–118.Google Scholar
  21. Liebowitz, S. J., & Watt, R. (2006). How to best ensure remuneration for creators in the market for music? Copyright and its alternatives. Journal of Economic Surveys, 20(4), 513–545.CrossRefGoogle Scholar
  22. Lipsman, A. (2007). Radiohead freeloaders abound but does the business model work? http://www.comscore.com/blog/2007/11/radiohead_freeloaders_abound_b.html. Posted on November 5, 2007. Visited on April 25, 2009.
  23. Montoro-Pons, J., & Cuadrado-García, M. (2011). Live and prerecorded popular music consumption. Journal of Cultural Economics, 35, 19–48.CrossRefGoogle Scholar
  24. Mortimer, J. H., & Sorensen, A. (2006). Supply responses to digital distribution: Recorded music and live performances. AEA annual meeting papers. Boston, MA: January 6–8, 2006. http://www.aeaweb.org/annual_mtg_papers/2006papers.html.
  25. Music, A. (2008). Warner Chappell reveals Radiohead’s ‘In Rainbows’ pot of gold. http://musically.com/blog/2008/10/15/exclusive-warner-chappell-reveals-radioheads-in-rainbows-pot-of-gold/. Posted on October 15, 2008; Visited on July 25, 2009.
  26. Peitz, M., & Waelbroeck, P. (2004). The effect of internet piracy on CD sales—cross section evidence. Review of Economic Research on Copyright Issues, 1, 71–79.Google Scholar
  27. Rambonilaza, T. (2009). Il n’y a pas d’arc en ciel sans orages, de la valeur monétaire de la musique. Mimeo. http://tina.rambonilaza.googlepages.com/Radiohead.pdf. Undated, Visited on April 25, 2009.
  28. Regner, T. (2010). Why consumers pay voluntarily: Evidence from online music. Jena Economic Research Papers 2010-081, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.Google Scholar
  29. Regner, T., & Barria, J. (2009). Do consumers pay voluntarily? The case of online music’. Journal of Economic Behavior & Organization, 71(2), 395–406.CrossRefGoogle Scholar
  30. Regner, T., Barria, J., Pitt, J., & Neville, B. (2009). An artist life-cycle model for digital media content: Strategies for the light web and the dark web. Electronic Commerce Research and Applications, 8, 334–342.CrossRefGoogle Scholar
  31. Reisman, R. (2010). FairPay: The future of a radical pricing process. An adaptive pricing process that can change the game in the media/content industry. Available at http://www.teleshuttle.com/FairPay/FairPayFuture.htm. Visited on December 15, 2010.
  32. Riener, G., & Traxler. C. (2011). Norms, moods, and free lunch: Longitudinal evidence on payments from a pay-what-you-want restaurant. Journal of Socio-Economics, 718, 1–6.Google Scholar
  33. Roe A. (2007). A Kirkland café with no prices. The seattle times, February 6. http://seattletimes.nwsource.com/html/businesstechnology/2003558690_terrabite06e.html. Visited on April 4, 2010.
  34. Rose, M. J. (2000). Stephen King’s ‘Plant’ uprooted. Wired. http://www.wired.com/culture/lifestyle/news/2000/11/40356. November 11: Visited on February 15, 2010.
  35. Shapiro, C., & Varian, H. R. (1999). Information rules, a strategic guide to the network economy. Boston, MA: Harvard Business School Press.Google Scholar
  36. Slive, J., & Bernhardt, D. (1998). Pirated for profit. Canadian Journal of Economics, 31, 886–899.CrossRefGoogle Scholar
  37. Takeyama, L. N. (1997). The intertemporal consequences of unauthorized reproduction of intellectual property. Journal of Law and Economics, 40, 511–522.CrossRefGoogle Scholar
  38. Tobias, R., & Javia, B. A. (2009). Do consumers pay voluntarily? The case of online music. Journal of Economic Behavior & Organization, 71, 395–406.CrossRefGoogle Scholar
  39. Tyrangiel, J. (2007). Radiohead says, pay what you want. Time. http://www.time.com/time/arts/article/0,8599,1666973,00.html. Visited on April 25, 2009.
  40. Zimmerman, D. L. (2003). Authorship without ownership: Reconsidering incentives in a digital age. DePaul Law Review, 52, 1121–1170.Google Scholar
  41. 2D BOY. Pay-what-you-want birthday sale results. http://2dboy.com/2009/10/19/birthday-sale-results/. Posted on October 19, 2009; Visited on November 16, 2009.

Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  1. 1.Université de Sousse and URFQSousseTunisia
  2. 2.Montpellier SupAgro and LAMETAMontpellier Cedex 1France
  3. 3.Université de Sousse and URFQMonastirTunisia

Personalised recommendations