Shivendu

Economic Implications of Variable Technology Standards for Movie Piracy in a Global Context

Even if bandwidth on the Internet is limited, compression technologies have made online music piracy a foremost problem in intellectual copyright protection. However, due to significantly larger sizes of video files, movies are still largely pirated by duplicating DVDs, VCDs, and other physical media. In the case of DVDs, movie studios have historically maintained different technology codes or formats across various regions of the world, primarily to control the timing of theatrical releases in these parts of the world. This paper formulates an analytical model to study the implications of maintaining different or incompatible technology standards in DVD and other optical disc players on global pricing and piracy of movie discs. Our formulation develops two distinct piracy types, namely, regional and global piracy, signifying if consumers will pirate movies released for their own region or those meant for other regions. Our results find that maintaining separate technology standards is very critical when there is piracy, as losses from global piracy can be higher than when only regional piracy exists. Further, we observe that piracy is not a victimless crime, in that not only do producers suffer losses but consumers in regions with high willingness to pay for quality also stand to lose. In addition, we find that increasing homogeneity in consumer preferences for quality across regions may not be beneficial to digital product vendors unless there is also uniformity in copyright protection laws. We conclude with recommendations for research and practice for movie studios as well as producers for other goods that are dependent on copyright protection such as books and pharmaceuticals.

Economics of technology standards: implications for offline movie piracy in a global context

Reduced sizes of music files due to compression technologies has allowed for piracy to become a rampant problem on the Internet even in the absence of significant bandwidth. However given the large sizes of video files, movies are still largely pirated by duplicating DVDs, VCDs and other physical media. Conventionally DVD formats have differed across various regions in the world albeit for controlling theatrical releases of movies. This paper formulates an analytical model to study the implication of varying technology standards of DVD players across different regions on the piracy of movies. This research identifies conditions under which consumers engage in global and regional piracy. Our findings show that maintaining separate technology standards across regions is effective in not only thwarting global piracy but it also allows movie studios to create variable quality movies and engage in discriminatory pricing. While consumers may still engage in local piracy, the overall profits to the firm under variable technology standards are shown to be higher then when a common DVD standard is adopted across all regions. The paper concludes with recommendations for research and practice.

Versioning in the Software Industry: Heterogeneous Disutility from Underprovisioning of Functionality

Literature has identified factors such as piracy, network externality, or concave cost of producing quality as key drivers of software versioning. However, software firms adopt versioning strategies that are often invariant across different market settings. To explain universal business practice of software versioning, we focus on “inconvenience” or disutility that users experience when software has lower functionality than what they require to accomplish tasks. In our model, users are heterogeneous on marginal valuation for functionality and the required level of functionality such that those with higher valuation have a higher required level of functionality. Users do not derive any additional utility if the software has more functionality than what they require. We show that heterogeneous disutility from underprovisioning of functionality is a sufficient condition for optimality of versioning under fairly general conditions. We also show that, as high-type users’ required level of functionality increases, the firm increases the functionality level of the high version. Yet surprisingly, the firm may decrease the functionality level of the low version if the proportion of high-type users is moderate. On the other hand, as the required level of functionality of low-type users increases, the firm may reduce the functionality level of the low version when the proportion of high-type users is high, though the functionality level of the high version remains the same. Counterintuitively, an increase in the high-type (low-type) users’ required level of functionality negatively (positively) impacts high-type users’ consumer surplus.

Multilayer Two-Sided Platforms: The Role of Exclusive Contracts

Mobile platforms are multilayer in the sense that application developers can access the users only through the two layers of the platform, namely operating systems (OS) and the carrier. Therefore, mobile platforms require contracting between OS and carrier as no firm has ability to connect both the layers of the platform. We develop a framework to study multilayer two-sided platforms and then examine the optimality of an exclusive contract by an entrant OS firm when the incumbent OS firm has non-exclusive contracts, such as Apple launching the iPhone when Blackberry was widely available. We show that exclusive contracts benefit entrant firm only if users have strong preferences for OSes, and paradoxically users benefit if developers enjoy weak cross-side network effects from those users. We also study the implications of exclusive contracts on social welfare and its implications for competition.

Targeted Couponing in Online Auctions

To study the role of targeted couponing in auctions, we develop a stylized model in which bidders have heterogeneous valuations and participation costs wherein their entry probabilities are endogenous. Couponing impacts the seller’s profit in two ways: (i) impact on bidders’ entry probability including negative externalities for the bidder who does not receive a coupon and (ii) value extraction. We find that targeting a coupon to the low-valuation bidder can be optimal for the firm even if it leads to a reduction in the joint entry probability of the two bidders because of the benefit from value extraction. A novel result is that in the context of auctions it can be optimal for the seller to issue targeted coupons to the high-valuation bidder. We also find that an increase in the bidders’ valuation or reduction in the participation cost can lead to lower profit for the seller. This result is driven by the nonmonotonicity of the joint entry probability of the two bidders and the seller profits being nonmon...