15.567 Student Project, Consumer Resale in a …Years since original album release Top 10 Albums...
Transcript of 15.567 Student Project, Consumer Resale in a …Years since original album release Top 10 Albums...
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Consumer Resale in a Digital Age
MIT Students
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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.
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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.
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Mary Moneybags
Charlie Cheapo
Content Producer
Retailer (eBay/
Amazon)
ContentDollars
Traditional Sale
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Mary Moneybags
Charlie Cheapo
Content Producer
Retailer (eBay/
Amazon)
ContentDollars
Used Good Sale
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Current Rental Market
CharlieCheapo
Content Producer
Retailer (Netflix)
ContentDollars
Mary Moneybags
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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
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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
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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
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60
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100
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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
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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.
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Consumer Resale Should be Allowed
• Reduces deadweight loss in society
• Each party in each transaction has some benefit, appealing to all stakeholders.
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Questions?
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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.