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A novel quality prediction method based on feature selection considering high dimensional product quality data
Managing piracy: Dual-channel strategy for digital contents
1. | School of Economics and Management, Harbin Institute of Technology, Shenzhen, Shenzhen, 518055, China |
2. | School of Business, Jiangsu Normal University, Xuzhou, 221116, China |
The Internet offers digital content disc producers the opportunities to design dual channels by introducing an online-direct store alongside traditional retail stores, but also leads related firms to suffer significant piracy problems. Using a game-theoretic framework, we explore dual-channel marketing optimality as a piracy-mitigating strategy for digital content sold in the physical disc format. We construct a price-setting game between a digital content producer and its independent retailer(s) in a pirated market by endogenizing the producer's copyright protection investments. We show that dual-channel marketing, a complement or a substitute for conventional copyright protection, can strategically mitigate the piracy level by increasing the equal-size retail sales volume. We also investigate how firms' pricing strategies and profits are influenced by the endogenous interaction of dual-channel marketing and copyright protection. We unexpectedly find that in a pirated market with insufficient copyright protection, dual-channel marketing can simultaneously raise firm pricing and sales volumes when the producer sells through a monopolistic retailer. We also identify the conditions under which dual-channel marketing can mitigate profit losses caused by piracy for the producer and the retailer(s). Unlike previous research which shows that dual-channel marketing benefits the producer and the monopolistic retailer because it mitigates double marginalization, in the pirated market, this win-win outcome occurs even if accompanied by aggravated double marginalization. Moreover, dual-channel marketing can mitigate all the firms' profit losses caused by piracy only when it can complement conventional copyright protection, i.e., when the producer sells through a monopolistic retailer or duopolistic retailers. In each situation, counter-intuitively, as copyright protection becomes increasingly costly, although the retailer(s) is (are) more willing to accept dual-channel marketing, the producer has a decreased incentive to design such sales channels.
References:
[1] |
I. Ahn and I. Shin,
On the optimal level of protection in DRM, Information Economics and Policy, 22 (2010), 341-353.
doi: 10.1016/j.infoecopol.2010.09.003. |
[2] |
A. Arya, B. Mittendorf and D. E. M. Sappington,
The bright side of supplier encroachment, Marketing Science, 26 (2007), 651-659.
doi: 10.1287/mksc.1070.0280. |
[3] |
T. Avinadav, T. Chernonog and Y. Perlman,
Analysis of protection and pricing strategies for digital productsunder uncertain demand, International Journal of Production Economics, 158 (2014), 54-64.
doi: 10.1016/j.ijpe.2014.07.021. |
[4] |
S. H. Bae and J. P. Choi,
A model of piracy, Information Economics and Policy, 18 (2006), 303-320.
doi: 10.1016/j.infoecopol.2006.02.002. |
[5] |
K. Cattani, W. Gilland, H. S. Heese and J. Swaminathan,
Boiling frogs: Pricing strategies for a manufacturer adding a directchannel that competes with the traditional channel, Production and Operations Management, 15 (2006), 40-56.
doi: 10.1111/j.1937-5956.2006.tb00002.x. |
[6] |
R. K. Chellappa and S. Shivendu,
Managing piracy: Pricing and sampling strategies for digital experience goods in vertically segmented markets, Information Systems Research, 16 (2005), 400-417.
doi: 10.1287/isre.1050.0069. |
[7] |
W.-Y. K. Chiang, D. Chhajed and J. D. Hess,
Direct marketing, indirect profits: A strategic analysis of dual-channel supply-chain design, Management Science, 49 (2003), 1-20.
doi: 10.1287/mnsc.49.1.1.12749. |
[8] |
P. Choi, S. H. Bae and J. Jun,
Digital piracy and firms' strategic interactions: The effects ofpublic copy protection and DRM similarity, Information Economics and Policy, 22 (2010), 354-364.
doi: 10.1016/j.infoecopol.2010.10.001. |
[9] |
B. Fritz, Sales of digital movies surge, 2014. Available from: https://www.wsj.com/articles/SB10001424052702304887104579306440621142958. |
[10] |
R. D. Gopal and A. Gupta,
Trading higher software piracy for higher profits: The case ofphantom piracy, Management Science, 56 (2010), 1946-1962.
doi: 10.1109/HICSS.2002.994188. |
[11] |
L. Guo and X. Meng,
Digital content provision and optimal copyright protection, Management Science, 61 (2015), 1183-1196.
doi: 10.1287/mnsc.2014.1972. |
[12] |
D. Hayes, Six reasons why dvds still make money – and won't die anytime soon, 2014. Available from: https://www.forbes.com/sites/dadehayes/2013/07/08/six-reasons-why-dvds-still-make-money-and-wont-die-anytime-soon/. |
[13] |
Y.-S. Huang, S.-H. Lin and C.-C. Fang,
Pricing and coordination with consideration of piracy for digitalgoods in supply chains, Journal of Business Research, 77 (2017), 30-40.
doi: 10.1016/j.jbusres.2017.03.023. |
[14] |
J. Jaisingh,
Piracy on file-sharing networks: Strategies for recording companies, Journal of Organizational Computing and Electronic Commerce, 17 (2007), 329-348.
doi: 10.1080/10919390701636239. |
[15] |
J. J. Kacen, J. D. Hess and W.-Y. K. Chiang,
Bricks or clicks? Consumer attitudes toward traditional stores andonline stores, Global Economics and Management Review, 18 (2013), 12-21.
doi: 10.1016/s2340-1540(13)70003-3. |
[16] |
A. Kim, A. Lahiri and D. Dey, The 'invisible hand' of piracy: An economic analysis of the information-goods supply chain, MIS Quarterly, 42 (2018), 1117–1141.
doi: 10.2139/ssrn.2426577. |
[17] |
D. M. Kreps and J. A. Scheinkman,
Quantity precommitment and bertrand competition yield cournot outcomes, The Bell Journal of Economics, 14 (1983), 326-337.
doi: 10.2307/3003636. |
[18] |
A. Lahiri and D. Dey,
Effects of piracy on quality of information goods, Management Science, 59 (2013), 245-264.
doi: 10.1287/mnsc.1120.1578. |
[19] |
T.-P. Liang and J.-S. Huang,
An empirical study on consumer acceptance of products in electronic markets: A transaction cost model, Decision Support Systems, 24 (1998), 29-43.
doi: 10.1016/S0167-9236(98)00061-X. |
[20] |
E. Priest, The future of music and film piracy in china, Berkeley Technology Law Journal, 21 (2006), 795. |
[21] |
RIAA, 2008 Year-End Shipment Statistics, 2009. Retrieved September 9, 2011. |
[22] |
M. D. Smith and R. Telang,
Piracy or promotion? The impact of broadband internet penetration on DVD sales, Information Economics and Policy, 22 (2010), 289-298.
doi: 10.1016/j.infoecopol.2010.02.001. |
[23] |
A. Sundararajan,
Managing digital piracy: Pricing and protection, Information Systems Research, 15 (2004), 287-308.
doi: 10.1287/isre.1040.0030. |
[24] |
A. A. Tsay and N. Agrawal,
Channel conflict and coordination in the e-commerce age, Production and Operations Management, 13 (2009), 93-110.
doi: 10.1111/j.1937-5956.2004.tb00147.x. |
[25] |
H. R. Varian, Versioning Information Goods, Working paper, University of California in Berkeley, 1997. |
[26] |
D. A. Vernik, D. Purohit and P. S. Desai,
Music downloads and the flip side of digital rights management, Marketing Science, 30 (2011), 1011-1027.
doi: 10.1287/mksc.1110.0668. |
[27] |
S.-Y. Wu and P.-Y. Chen,
Versioning and piracy control for digital information goods, Operations Research, 56 (2008), 157-172.
doi: 10.1287/opre.1070.0414. |
show all references
References:
[1] |
I. Ahn and I. Shin,
On the optimal level of protection in DRM, Information Economics and Policy, 22 (2010), 341-353.
doi: 10.1016/j.infoecopol.2010.09.003. |
[2] |
A. Arya, B. Mittendorf and D. E. M. Sappington,
The bright side of supplier encroachment, Marketing Science, 26 (2007), 651-659.
doi: 10.1287/mksc.1070.0280. |
[3] |
T. Avinadav, T. Chernonog and Y. Perlman,
Analysis of protection and pricing strategies for digital productsunder uncertain demand, International Journal of Production Economics, 158 (2014), 54-64.
doi: 10.1016/j.ijpe.2014.07.021. |
[4] |
S. H. Bae and J. P. Choi,
A model of piracy, Information Economics and Policy, 18 (2006), 303-320.
doi: 10.1016/j.infoecopol.2006.02.002. |
[5] |
K. Cattani, W. Gilland, H. S. Heese and J. Swaminathan,
Boiling frogs: Pricing strategies for a manufacturer adding a directchannel that competes with the traditional channel, Production and Operations Management, 15 (2006), 40-56.
doi: 10.1111/j.1937-5956.2006.tb00002.x. |
[6] |
R. K. Chellappa and S. Shivendu,
Managing piracy: Pricing and sampling strategies for digital experience goods in vertically segmented markets, Information Systems Research, 16 (2005), 400-417.
doi: 10.1287/isre.1050.0069. |
[7] |
W.-Y. K. Chiang, D. Chhajed and J. D. Hess,
Direct marketing, indirect profits: A strategic analysis of dual-channel supply-chain design, Management Science, 49 (2003), 1-20.
doi: 10.1287/mnsc.49.1.1.12749. |
[8] |
P. Choi, S. H. Bae and J. Jun,
Digital piracy and firms' strategic interactions: The effects ofpublic copy protection and DRM similarity, Information Economics and Policy, 22 (2010), 354-364.
doi: 10.1016/j.infoecopol.2010.10.001. |
[9] |
B. Fritz, Sales of digital movies surge, 2014. Available from: https://www.wsj.com/articles/SB10001424052702304887104579306440621142958. |
[10] |
R. D. Gopal and A. Gupta,
Trading higher software piracy for higher profits: The case ofphantom piracy, Management Science, 56 (2010), 1946-1962.
doi: 10.1109/HICSS.2002.994188. |
[11] |
L. Guo and X. Meng,
Digital content provision and optimal copyright protection, Management Science, 61 (2015), 1183-1196.
doi: 10.1287/mnsc.2014.1972. |
[12] |
D. Hayes, Six reasons why dvds still make money – and won't die anytime soon, 2014. Available from: https://www.forbes.com/sites/dadehayes/2013/07/08/six-reasons-why-dvds-still-make-money-and-wont-die-anytime-soon/. |
[13] |
Y.-S. Huang, S.-H. Lin and C.-C. Fang,
Pricing and coordination with consideration of piracy for digitalgoods in supply chains, Journal of Business Research, 77 (2017), 30-40.
doi: 10.1016/j.jbusres.2017.03.023. |
[14] |
J. Jaisingh,
Piracy on file-sharing networks: Strategies for recording companies, Journal of Organizational Computing and Electronic Commerce, 17 (2007), 329-348.
doi: 10.1080/10919390701636239. |
[15] |
J. J. Kacen, J. D. Hess and W.-Y. K. Chiang,
Bricks or clicks? Consumer attitudes toward traditional stores andonline stores, Global Economics and Management Review, 18 (2013), 12-21.
doi: 10.1016/s2340-1540(13)70003-3. |
[16] |
A. Kim, A. Lahiri and D. Dey, The 'invisible hand' of piracy: An economic analysis of the information-goods supply chain, MIS Quarterly, 42 (2018), 1117–1141.
doi: 10.2139/ssrn.2426577. |
[17] |
D. M. Kreps and J. A. Scheinkman,
Quantity precommitment and bertrand competition yield cournot outcomes, The Bell Journal of Economics, 14 (1983), 326-337.
doi: 10.2307/3003636. |
[18] |
A. Lahiri and D. Dey,
Effects of piracy on quality of information goods, Management Science, 59 (2013), 245-264.
doi: 10.1287/mnsc.1120.1578. |
[19] |
T.-P. Liang and J.-S. Huang,
An empirical study on consumer acceptance of products in electronic markets: A transaction cost model, Decision Support Systems, 24 (1998), 29-43.
doi: 10.1016/S0167-9236(98)00061-X. |
[20] |
E. Priest, The future of music and film piracy in china, Berkeley Technology Law Journal, 21 (2006), 795. |
[21] |
RIAA, 2008 Year-End Shipment Statistics, 2009. Retrieved September 9, 2011. |
[22] |
M. D. Smith and R. Telang,
Piracy or promotion? The impact of broadband internet penetration on DVD sales, Information Economics and Policy, 22 (2010), 289-298.
doi: 10.1016/j.infoecopol.2010.02.001. |
[23] |
A. Sundararajan,
Managing digital piracy: Pricing and protection, Information Systems Research, 15 (2004), 287-308.
doi: 10.1287/isre.1040.0030. |
[24] |
A. A. Tsay and N. Agrawal,
Channel conflict and coordination in the e-commerce age, Production and Operations Management, 13 (2009), 93-110.
doi: 10.1111/j.1937-5956.2004.tb00147.x. |
[25] |
H. R. Varian, Versioning Information Goods, Working paper, University of California in Berkeley, 1997. |
[26] |
D. A. Vernik, D. Purohit and P. S. Desai,
Music downloads and the flip side of digital rights management, Marketing Science, 30 (2011), 1011-1027.
doi: 10.1287/mksc.1110.0668. |
[27] |
S.-Y. Wu and P.-Y. Chen,
Versioning and piracy control for digital information goods, Operations Research, 56 (2008), 157-172.
doi: 10.1287/opre.1070.0414. |



Traditional channel | Dual channels | |
Price | ||
Wholesale price, |
||
Online-direct price, |
_ | |
Retail price, |
||
Demand | ||
Online-direct demand, |
_ | 0 |
Retail demand, |
||
Total demand, |
||
Profit | ||
Producer profit, |
||
Retailer profit, |
Traditional channel | Dual channels | |
Price | ||
Wholesale price, |
||
Online-direct price, |
_ | |
Retail price, |
||
Demand | ||
Online-direct demand, |
_ | 0 |
Retail demand, |
||
Total demand, |
||
Profit | ||
Producer profit, |
||
Retailer profit, |
Copyright protection level, |
1 | |
Price | ||
Wholesale price, |
||
Retail price, |
||
Demand | ||
Retail (Licensed) demand, |
||
Piracy demand, |
||
Profit | ||
Producer profit, |
||
Retail profit, |
Copyright protection level, |
1 | |
Price | ||
Wholesale price, |
||
Retail price, |
||
Demand | ||
Retail (Licensed) demand, |
||
Piracy demand, |
||
Profit | ||
Producer profit, |
||
Retail profit, |
Copyright protection level, |
1 | |
Price | ||
Wholesale price, |
||
Online-direct price, |
||
Retail price, |
||
Demand | ||
Online-direct demand, |
0 | 0 |
Retail demand, |
||
Licensed demand, |
||
Piracy demand, |
||
Profit | ||
Producer profit, |
||
Retail profit, |
Copyright protection level, |
1 | |
Price | ||
Wholesale price, |
||
Online-direct price, |
||
Retail price, |
||
Demand | ||
Online-direct demand, |
0 | 0 |
Retail demand, |
||
Licensed demand, |
||
Piracy demand, |
||
Profit | ||
Producer profit, |
||
Retail profit, |
Copyright protection level, |
1 | |
Price | ||
Wholesale price, |
||
Retail price, |
||
Demand | ||
Retail |
||
Licensed demand, |
||
Piracy demand, |
||
Profit | ||
Producer profit, |
||
Retail profit, |
Copyright protection level, |
1 | |
Price | ||
Wholesale price, |
||
Retail price, |
||
Demand | ||
Retail |
||
Licensed demand, |
||
Piracy demand, |
||
Profit | ||
Producer profit, |
||
Retail profit, |
Copyright protection level, |
1 | |
Price | ||
Wholesale price, |
||
Online-direct price, |
||
Retail price, |
||
Demand | ||
Online-direct demand, |
0 | 0 |
Retail |
||
Licensed demand, |
||
Piracy demand, |
||
Profit | ||
Producer profit, |
||
Retail profit, |
Copyright protection level, |
1 | |
Price | ||
Wholesale price, |
||
Online-direct price, |
||
Retail price, |
||
Demand | ||
Online-direct demand, |
0 | 0 |
Retail |
||
Licensed demand, |
||
Piracy demand, |
||
Profit | ||
Producer profit, |
||
Retail profit, |
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