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Impact of Open Policy on Firm Profits and Social Welfare in Different Digital Rights Management Models

This summary discusses three models that analyze the impact of open policy on firm profits and social welfare in the context of digital rights management and technological tying. It examines the implications of government intervention and the potential benefits of having a monopoly.

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Impact of Open Policy on Firm Profits and Social Welfare in Different Digital Rights Management Models

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  1. Comments on “Digital Rights Management and Technological Tying” by Jin-Hyuk Kim Feng Zhu University of Southern California May 8, 2009

  2. Summary • Three firms: two hardware firms (A and B) and one content provider (C) • Three models Firm C Firm A Firm B Model 1I: Consumers with heterogeneous taste on content Model 1: Homogeneous Consumers Model III: Two-period model with hardware upgrades

  3. Nice features • Looking at important questions • Simple and elegant models • Analyze the impact of open policy on firm profits and social welfare under all three models • Interesting result: government intervention may not be desirable in Model III and it may be good to have a monopoly

  4. Suggestions • Be explicit that once firm C accepts firm A’s offer, it deals with A exclusively. • Firm C may also be powerful in reality • DRM-protected content increases copying cost from zero to h • h may only matter for the first illegal user • Is h a function of the number of illegal users

  5. Suggestions • Endogenize firm A’s decision in allowing the hardware to play illegal content • In Model III, allow firms to price below marginal cost in the first period. • Does iTune reduce piracy?

  6. Thank you!

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