Article

Consumer Search and Retailer Strategies in the Presence of Online Music Sharing

Department of Operations and Information Management, University of Connecticut, Сторс, Connecticut, United States
Journal of Management Information Systems (Impact Factor: 2.06). 06/2006; 23(1):129-159. DOI: 10.2753/MIS0742-1222230104
Source: DBLP

ABSTRACT

Advances in online technologies and bandwidth availability have opened new vistas for online distribution of digital goods. But potential benefits for consumers are juxtaposed against challenges for retailers of such goods. Here we investigate one type of digital experience good - music - whose market environment includes the very real presence of online piracy options. While arguments abound for and against online distribution of such digital goods, little research exists in this area. We develop a model of consumer search for such an experience good, and study five different emerging market environments for retailers (from a traditional brick and mortar retailer to an online retailer) where consumers have opportunities of pirating from illegal networks. Retailer cost to publishers is modeled using a variety of licensing schema. Results from a survey we conducted, together with data from online sharing networks, are utilized to investigate the validity of a key assumption. Finally, computational analysis is used to develop insights related to conditions that cannot be solved for analytically. We find that online selling strategies for a traditional retailer can provide additional profits even in the face of existing piracy options. Our results indicate that decreasing piracy is not necessarily equivalent to increasing profit. We show that leading strategies for business in such goods should include the use of pricing options, provision of efficient search tools to consumers and new approaches to licensing structures with digital good publishers.

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Available from: Sudip Bhattacharjee, Dec 25, 2013
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    • "Some studies used survey data from consumers to measure the experienced utilities of products (Foxall and James 2003; Lynch Jr and Ariely 2000; Ratchford and Srinivasan 1993), which might be inconvenient and relatively biased (Moe 2006). With the development of IODAs, consumers' ratings on purchased products could be used to explicitly represent and measure products' experienced utilities (Adomavicius and Tuzhilin 2005; Bhattacharjee et al. 2006). For example, after watching a movie, the consumer selects a number in a rating scale to reflect his experienced utility of the movie. "
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    • "Pirating of information goods can, therefore, actually increase seller profitability (Bakos et al. 1999, Varian 2000, Chellappa and Shivendu 2005). Online sharing of music (Bhattacharjee et al. 2006; Gopal et al. 2006) and open source software (Raghu et al. 2009), which might have been regarded as a reason for losing profit, do not necessarily hurt the sellers. Several researchers have examined the impact of allowing (or restricting) the copying of information goods in the general framework of digital rights management. "
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