15.567 student project, consumer resale in a …years since original album release top 10 albums...
TRANSCRIPT
Consumer Resale in a Digital Age
MIT Students
Digital Used Goods
Used goods have several characteristics
ProducerOriginalBuyer
OriginalBuyer
SecondaryBuyer
NEW
USED
Physical Appearance Content Availability (Timing)
Used goods X X X
XDigital used goods
Image by MIT OpenCourseWare.
Current State
• Legal restrictions currently disallow digital resale
• Amazon Explicitly disallows this when purchasing digital content
• Piracy – Those with WTP < Purchase Price have only pirating as an
option
– Current Pirates are not a concern of content producers. Only those converted by lower prices are.
Mary Moneybags
Charlie Cheapo
Content Producer
Retailer (eBay/
Amazon)
ContentDollars
Traditional Sale
Mary Moneybags
Charlie Cheapo
Content Producer
Retailer (eBay/
Amazon)
ContentDollars
Used Good Sale
Current Rental Market
CharlieCheapo
Content Producer
Retailer (Netflix)
ContentDollars
Mary Moneybags
Hypothesis: A Used Digital goods market decreases dead-weight loss
A resale market for digital goods would reduce deadweight loss.
Consumer BenefitUsed Good PricingDifferent WTP
Content Producer BenefitIncreased content spreadIncreased Piracy Conversion
Retailer BenefitMore VolumeTransaction fee from each resale
Benefits to Consumer
• Consumers Pay a lower price for identical content
• They are willing to trade the ‘freshness’ of their music for dollars
Current rigid prices for digital goods do not reflect consumer willingness to pay
$-
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00
Years since original album release
Top 10 Albums Average Price
Price New CD
Price MP3
Price Used CD
Benefits to Retailer
• More Transactions = More Revenue
• Used goods allow you to capture consumers at different price points over a longer period of time.
• MC for enabling these resale transactions is zero.
0
20
40
60
80
100
120
140
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Cumulative Revenue from Transactions over Time
Cumulative Revenue - No Resale
Cumulative Revenue - Resale
Benefits to Producer
• Content Exposure– Long tail– Peer to peer: “word of mouth”
• Piracy Conversion– Customers with a WTP > Resale Price can purchase
used rather than pirated content ( some revenue vs. no revenue)
• Alternative Options – Droit de Suite vs. First Sale Doctrine
• Droit de Suite allows original producers to collect a fee each time a work is resold.
Consumer Resale Should be Allowed
• Reduces deadweight loss in society
• Each party in each transaction has some benefit, appealing to all stakeholders.
Questions?
MIT OpenCourseWarehttp://ocw.mit.edu
15.567 The Economics of Information: Strategy, Structure and PricingFall 2010 For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms.