Main Content

Digital Distribution and the Prohibition of Resale Markets for Information Goods

The Challenge of Revenue Sharing with Bundled Pricing

Music for a Song: An Empirical Look at Uniform Song Pricing and Its Alternatives

Benjamin R. Shiller

Publication Details:
Shiller, Benjamin R.. "Digital Distribution and the Prohibition of Resale Markets for Information Goods." Quantitative Marketing and Economics (2013). (forthcoming)

Abstract:
An existing theoretical literature finds that frictionless resale markets cannot reduce profits of monopolist producers of perfectly durable goods. This paper starts by presenting logical arguments suggesting this finding does not hold for goods consumers tire of with use, implying the impact of resale is an empirical question. The empirical impact is then estimated in the market for video games, one of many markets in which producers may soon legally prevent resale by distributing their products digitally as downloads or streamed rentals. Estimation proceeds in two steps. First, demand parameters are estimated using a dynamic discrete choice model in a market with allowed resale, using data on new sales and used trade-ins. Then, using these parameter estimates, prices, profits, and consumer welfare are simulated under counterfactual environments. When resale is allowed, firms are unable to prevent their goods from selling for low prices in later periods. The ability to do so by restricting resale outright yields significant profit increases. Renting, however, does not raise profits as much due to a revenue extraction problem.

Publication Details:
Shiller, Benjamin R./Joel Waldfogel. "The Challenge of Revenue Sharing with Bundled Pricing." Economic Inquiry 51. 2 (2013): 1155-1165.

Publication Details:
Shiller, Benjamin R./Joel Waldfogel. "Music for a Song: An Empirical Look at Uniform Song Pricing and Its Alternatives." Journal of Industrial Economics 59. 4 (2011): 630-660.