Consumer Resale in a Digital Age
MIT Students
Digital Used Goods
Used goods have several characteristics
Physical Appearance
Used goods
X
Digital used goods
Content
Availability (Timing)
X
X
X
Image by MIT OpenCourseWare.
NEW
USED
Producer
Original
Buyer
Original
Buyer
Secondary
Buyer
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.
Traditional Sale
Content
Producer
Retailer
(eBay/
Amazon)
Mary
Moneybags
Charlie
Cheapo
Content
Dollars
Used Good Sale
Content
Producer
Retailer
(eBay/
Amazon)
Mary
Moneybags
Charlie
Cheapo
Content
Dollars
Current Rental Market
Content
Producer
Retailer
(Netflix)
Mary
Moneybags
Charlie
Cheapo
Content
Dollars
Hypothesis: A Used Digital goods
market decreases dead-weight loss
A resale market for digital
goods would reduce
deadweight loss.
Consumer Benefit
Used Good Pricing
Different WTP
Retailer Benefit
More Volume
Transaction fee from each
resale
Content Producer Benefit
Increased content spread
Increased Piracy Conversion
Benefits to Consumer
Top 10 Albums Average Price
$14.00
$12.00
$10.00
$8.00
Price New CD
$6.00
Price MP3
$4.00
Price Used CD
$2.00
$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
• 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
Benefits to Retailer
Cumulative Revenue from Transactions over Time
140
120
100
80
Cumulative Revenue - No Resale
60
Cumulative Revenue - Resale
40
20
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
• 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.
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 OpenCourseWare
http://ocw.mit.edu
15.567 The Economics of Information: Strategy, Structure and Pricing
Fall 2010
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