Advertisement

Optimal Piracy Control: Should a Firm Implement Digital Rights Management?

  • Dan Wu
  • Guofang NanEmail author
  • Minqiang Li
Article
  • 227 Downloads

Abstract

Many firms offer digital rights management (DRM) technologies to increase the piracy cost, thereby protecting illegal copy and distribution. However, many industrial cases contradict the speculation that using DRM technologies reduces legal users’ net value. Therefore, we develop a theoretical model to examine the trade-off based on consumer heterogeneity in piracy cost sensitivity to explore under what conditions a monopoly implements DRM policy. In the model, we categorize pirates into two types according to their behaviours in the piracy process. We find that adopting DRM restriction is profitable to the firm when the level of DRM restriction is high. The optimal restriction level is the maximal technological level when piracy cost is high and the maximal technological level is higher than a threshold. In addition, we derive that the firm should implement policies to prevent downloading unauthorized products shared by other legal users from a P2P network. When both piracy cost and DRM restriction level are low, a lower piracy cost increases the firm’s profit.

Keywords

Piracy Digital rights management Cost sensitivity Pricing Digital products 

Notes

Acknowledgements

This research is partially supported by research grant from the National Science Foundation of China (No.71471128) and the Key Program of National Natural Science Foundation of China (No.71631003).

Compliance with Ethical Standards

Conflict of Interest

All authors declare that they have no conflict of interest.

Human and Animal Rights Statement

This article does not contain any studies with human participants or animals performed by any of the authors.

References

  1. Al-Rafee, S., & Cronan, T. P. (2006). Digital piracy: Factors that influence attitude toward behavior. Journal of Business Ethics, 63(3), 237–259.CrossRefGoogle Scholar
  2. Asongu, S. A., Singh, P., & Le Roux, S. (2018). Fighting software piracy: Some global conditional policy instruments. Journal of Business Ethics, 152(1), 175–189.CrossRefGoogle Scholar
  3. Bae, S. H., & Choi, J. P. (2006). A model of piracy. Information Economics and Policy, 18(3), 303–320.CrossRefGoogle Scholar
  4. Banerjee, D. S. (2003). Software piracy: A strategic analysis and policy instruments. International Journal of Industrial Organization, 21(1), 97–127.CrossRefGoogle Scholar
  5. Bhattacharjee, S., Gopal, R. D., Lertwachara, K., & Marsden, J. R. (2006a). Consumer search and retailer strategies in the presence of online music sharing. Journal of Management Information Systems, 23(1), 129–159.CrossRefGoogle Scholar
  6. Bhattacharjee, S., Gopal, R. D., Lertwachara, K., & Marsden, J. R. (2006b). Impact of legal threats on online music sharing activity: An analysis of music industry legal actions. The Journal of Law and Economics, 49(1), 91–114.CrossRefGoogle Scholar
  7. Business Software Alliance (BSA) (2016). BSA Global Software Survey: Seizing opportunity through license compliance. REPORT, BSA, Washington, DC.Google Scholar
  8. Chellappa, R. K., & Shivendu, S. (2005). Managing piracy: Pricing and sampling strategies for digital experience goods in vertically segmented markets. Information Systems Research, 16(4), 400–417.CrossRefGoogle Scholar
  9. Chen, Y. N., & Png, I. (2003). Information goods pricing and copyright enforcement: Welfare analysis. Information Systems Research, 14(1), 107–123.CrossRefGoogle Scholar
  10. Choi, P., Bae, S. H., & Jun, J. (2010). Digital piracy and firms’ strategic interactions: The effects of public copy protection and DRM similarity. Information Economics and Policy, 22(4), 354–364.CrossRefGoogle Scholar
  11. Conner, K. R., & Rumelt, R. P. (1991). Software piracy: An analysis of protection strategies. Management Science, 37(2), 125–139.CrossRefGoogle Scholar
  12. Dey, D., Kim, A., & Lahiri, A. (2018). Online piracy and the “longer arm” of enforcement. Management Science.  https://doi.org/10.1287/mnsc.2017.2984.
  13. Ernesto. (2008). Top 10 most pirated games of 2008. https://torrentfreak.com/top-10-most-pirated-games-of-2008-081204/. Accessed 23 Aug 2017.
  14. Fan, M., Kumar, S., & Whinston, A. B. (2009). Short-term and long-term competition between providers of shrink-wrap software and software as a service. European Journal of Operational Research, 196(2), 661–671.CrossRefGoogle Scholar
  15. Frattolillo, F. (2017). A digital rights management system based on cloud. TELKOMNIKA (Telecommunication Computing Electronics and Control), 15(2), 671–677.CrossRefGoogle Scholar
  16. Gans, J. S. (2015). “Selling out” and the impact of music piracy on artist entry. Information Economics and Policy, 32, 58–64.CrossRefGoogle Scholar
  17. Glass, R. S., & Wood, W. A. (1996). Situational determinants of software piracy: An equity theory perspective. Journal of Business Ethics, 15(11), 1189–1198.CrossRefGoogle Scholar
  18. Godinho de Matos, M., Ferreira, P., & Smith, M. D. (2017). The effect of subscription video-on-demand on piracy: Evidence from a household-level randomized experiment. Management Science, 64, 5610–5630.  https://doi.org/10.1287/mnsc.2017.2875.CrossRefGoogle Scholar
  19. Gopal, R. D., & Gupta, A. (2010). Trading higher software piracy for higher profits: The case of phantom piracy. Management Science, 56(1), 1946–1962.CrossRefGoogle Scholar
  20. Gopal, R. D., & Sanders, G. L. (1997). Preventive and deterrent controls for software piracy. Journal of Management Information Systems, 13(4), 29–47.CrossRefGoogle Scholar
  21. Gopal, R. D., & Sanders, G. L. (1998). International software piracy: Analysis of key issues and impacts. Information Systems Research, 9(4), 380–397.CrossRefGoogle Scholar
  22. Greenberg, A., & Irwin, M. J. (2008). Spore’s piracy problem. https://www.forbes.com/2008/09/12/spore-drm-piracy-tech-security-cx_ag_mji_0912spore.html#249ba0ed2614. Accessed 25 Aug 2017.
  23. Guo, L., & Meng, X. (2014). Digital content provision and optimal copyright protection. Management Science, 61(5), 1183–1196.CrossRefGoogle Scholar
  24. Herings, P. J. J., Peeters, R., & Yang, M. S. (2018). Piracy on the internet: Accommodate it or fight it? A dynamic approach. European Journal of Operational Research, 266(1), 328–339.CrossRefGoogle Scholar
  25. 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, 30–40.CrossRefGoogle Scholar
  26. Husted, B. W. (2000). The impact of national culture on software piracy. Journal of Business Ethics, 26(3), 197–211.CrossRefGoogle Scholar
  27. Jain, S. (2008). Digital piracy: A competitive analysis. Marketing Science, 27(4), 610–626.CrossRefGoogle Scholar
  28. Jaisingh, J. (2009). Impact of piracy on innovation at software firms and implications for piracy policy. Decision Support Systems, 46(4), 763–773.CrossRefGoogle Scholar
  29. Jobs, S. 2007. Thoughts on music. Apple (February 6) http://www.apple.com/fr/hotnews/thoughtsonmusic/. Accessed 17 Aug 2017.
  30. Khouja, M., & Smith, M. A. (2007). Optimal pricing for information goods with piracy and saturation effect. European Journal of Operational Research, 176(1), 482–497.CrossRefGoogle Scholar
  31. Khouja, M., Hadzikadic, M., Rajagopalan, H. K., & Tsay, L. (2008). Application of complex adaptive systems to pricing of reproducible information goods. Decision Support Systems, 44(3), 725–739.CrossRefGoogle Scholar
  32. 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.CrossRefGoogle Scholar
  33. Koklic, M. K., Kukar-Kinney, M., & Vida, I. (2016). Three-level mechanism of consumer digital piracy: Development and cross-cultural validation. Journal of Business Ethics, 134(1), 15–27.CrossRefGoogle Scholar
  34. Koroush, G. (2008). PC game piracy examined: Page 8. http://www.tweakguides.com/Piracy_8.html. Accessed 3 Oct 2017.
  35. Lahiri, A., & Dey, D. (2013). Effects of piracy on quality of information goods. Management Science, 59(1), 245–264.CrossRefGoogle Scholar
  36. Leung, T. C. (2015). Music piracy: Bad for record sales but good for the iPod? Information Economics and Policy, 31, 1–12.CrossRefGoogle Scholar
  37. Li, S., Cheng, H. K., & Jin, Y. (2018). Optimal distribution strategy for Enterprise software: Retail, SaaS, or dual channel? Production and Operations Management, 27(11), 1928–1939.CrossRefGoogle Scholar
  38. Liu, E., Liu, Z., & Shao, F. (2014). Digital rights management and access control in multimedia social networks. In Genetic and evolutionary computing (pp. 257–266). Cham: Springer.CrossRefGoogle Scholar
  39. Ma, L., Montgomery, A. L., Singh, P. V., & Smith, M. D. (2014). An empirical analysis of the impact of pre-release movie piracy on box office revenue. Information Systems Research, 25(3), 590–603.CrossRefGoogle Scholar
  40. Ma, Z., Jiang, M., Gao, H., & Wang, Z. (2018). Blockchain for digital rights management. Future Generation Computer Systems, 89, 746–764.CrossRefGoogle Scholar
  41. Machado, F. S., Sainam, P., Raghu, T. S., & Sinha, R. (2017). Software piracy in the presence of open source alternatives. Journal of the Association for Information Systems, 18(1), 1–21.CrossRefGoogle Scholar
  42. Nan, G., Wu, D., Li, M., & Tan, Y. (2018). Optimal freemium strategy for information goods in the presence of piracy. Journal of the Association for Information Systems, 19(4), 266–305.CrossRefGoogle Scholar
  43. Ning, Y., Xu, S. X., Yan, M., & Huang, G. Q. (2018). Digital pricing with piracy and variety seeking. International Journal of Production Economics, 206, 184–195.CrossRefGoogle Scholar
  44. Papies, D., & van Heerde, H. J. (2017). The dynamic interplay between recorded music and live concerts: The role of piracy, unbundling, and artist characteristics. Journal of Marketing, 81(4), 67–87.CrossRefGoogle Scholar
  45. Prasad, A., & Mahajan, V. (2003). How many pirates should a software firm tolerate?: An analysis of piracy protection on the diffusion of software. International Journal of Research in Marketing, 20(4), 337–353.CrossRefGoogle Scholar
  46. Rojas, C., & Briceño, A. (2019). The effects of piracy on competition: Evidence from subscription TV. International Journal of Industrial Organization, 63, 18–43.CrossRefGoogle Scholar
  47. Sinha, R. K., Machado, F. S., & Sellman, C. (2010). Don't think twice, it's all right: Music piracy and pricing in a DRM-free environment. Journal of Marketing, 74(2), 40–54.CrossRefGoogle Scholar
  48. Sun, D., Easley, R., & Kim, B. C. (2015). Optimal digital rights management with uncertain piracy. Decision Sciences, 46(1), 165–191.CrossRefGoogle Scholar
  49. Sundararajan, A. (2004). Managing digital piracy: Pricing and protection. Information Systems Research, 15(3), 287–308.CrossRefGoogle Scholar
  50. Udo, G., Bagchi, K., & Maity, M. (2016). Exploring factors affecting digital piracy using the norm activation and UTAUT models: The role of national culture. Journal of Business Ethics, 135(3), 517–541.CrossRefGoogle Scholar
  51. Ugale, K. S., Mune, A., & Deshmukh, H. R. (2017). Digital rights management by using cloud computing. International Journal of Computer Engineering and Information Technology, 9(4), 67.Google Scholar
  52. Vernik, D. A., Purohit, D., & Desai, P. S. (2011). Music downloads and the flip side of digital rights management. Marketing Science, 30(6), 1011–1027.CrossRefGoogle Scholar
  53. Waters, J. (2015). Welfare implications of piracy with dynamic pricing and heterogeneous consumers. European Journal of Operational Research, 240(3), 904–911.CrossRefGoogle Scholar
  54. Wu, S., & Chen, P. (2008). Versioning and piracy control for digital information goods. Operations Research, 56(1), 157–172.CrossRefGoogle Scholar
  55. Wu, D., Nan, G., & Li, M. (2018). Optimal software upgrade strategy: Should we sell products or premium services in the presence of piracy? Electronic Commerce Research and Applications, 28, 219–229.CrossRefGoogle Scholar
  56. Yang, Z., & Wang, J. (2015). Differential effects of social influence sources on self-reported music piracy. Decision Support Systems, 69, 70–81.CrossRefGoogle Scholar
  57. Yoon, C. (2011). Theory of planned behavior and ethics theory in digital piracy: An integrated model. Journal of Business Ethics, 100(3), 405–417.CrossRefGoogle Scholar
  58. Zhang, L. (2016). Intellectual property strategy and the long tail: Evidence from the recorded music industry. Management Science, 64(1), 24–42.CrossRefGoogle Scholar
  59. Zhang, J., Cai, J., & Zhang, Z. (2017). A novel digital rights management mechanism on peer-to-peer streaming system. In Advances in intelligent information hiding and multimedia signal processing (pp. 243–250). Cham: Springer.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.College of Management and EconomicsTianjin UniversityTianjinPeople’s Republic of China

Personalised recommendations