This is the accepted version of the paper.This version of the publication may differ from the final published version. We analyze the implications of consumer privacy for competition in the marketplace. Firms compete for consumer information and derive revenues both from consumer purchases as well as from disclosing consumer information in a secondary market. Consumers choose which rm to patronize and how much personal information to provide it with. We show that rms maximize prots by focusing on a single revenue source and competing at the extensive rather than the intensive margin, outperforming competitors by attracting a larger customer base. We also show that competition drives the provision of services with a low level of consumer information disclosure (high level of privacy), but higher competition intensity in the marketplace need not improve privacy when consumers exhibit low willingness to pay. Our ndings are relevant to the business models of Internet rms and contribute to inform the regulatory debate on consumer privacy. Permanent repository link:Keywords: Information Acquisition, Information Disclosure, Online Privacy, Privacy Regulation JEL codes: D83, L15, L4, M21 * We thank the journal's editors and two anonymous referees for suggestions that helped to improve this paper substantially. We also thank Do Yoon Kim for research assistance, Larbi Alaoui, Andrei Hagiu, and Martin Peitz for helpful comments and suggestions, as well as participants at UPF's internal micro seminar and the ZEW economics of ICT conference.
We study competitive interaction between two alternative models of digital content distribution over the Internet: peer-to-peer (p2p) …le sharing and centralized client-server distribution.We present microfoundations for a stylized model of p2p …le sharing where all peers are endowed with standard preferences and show that the endogenous structure of the network is conducive to sharing by a signi…cant number of peers, even if sharing is costlier than freeriding. We build on this model of p2p to analyze the optimal strategy of a pro…t-maximizing …rm, such as Apple, that o¤ers content available at positive prices. We characterize the size of the p2p network as a function of the …rm's pricing strategy, and show that the …rm may be better o¤ setting high prices, allowing the network to survive, and that the p2p network may work more e¢ ciently in the presence of the …rm than in its absence.
I examine the role of word of mouth in consumer's product discovery process and its implications for the firm. A monopolist supplies an assortment of horizontally differentiated products and consumers search for a product that matches their taste by sampling products from the assortment or by seeking product recommendations from other consumers. I analyze the underlying consumer interactions that lead to the emergence of word of mouth, examine the optimal pricing and assortment strategy of the firm, and explain the impact of word of mouth on the concentration of sales within the assortment. The model provides a rationale for the long tail phenomenon, explains recent empirical findings in online retail, and is well suited for product categories such as music, film, books, and video game entertainment.
Digital piracy challenges firms by reducing revenues and shifting consumption habits. Recently, some firms have successfully leveraged business models against piracy, but the understanding about this phenomenon still lacks depth and structure. This study examines the characteristics of digital piracy in some of the most affected industries; presents comparative case studies of two iconic firms, Spotify and Netflix; and analyzes their digital business model responses. This article then considers a generic digital content distributor and explains how business model responses contribute to generating and capturing value. Theoretical and practical implications for technological innovation, firm diversification, and network competition are also discussed.
We study competitive interaction between two alternative models of digital content distribution over the Internet: peer-to-peer (p2p) …le sharing and centralized client-server distribution.We present microfoundations for a stylized model of p2p …le sharing where all peers are endowed with standard preferences and show that the endogenous structure of the network is conducive to sharing by a signi…cant number of peers, even if sharing is costlier than freeriding. We build on this model of p2p to analyze the optimal strategy of a pro…t-maximizing …rm, such as Apple, that o¤ers content available at positive prices. We characterize the size of the p2p network as a function of the …rm's pricing strategy, and show that the …rm may be better o¤ setting high prices, allowing the network to survive, and that the p2p network may work more e¢ ciently in the presence of the …rm than in its absence.
Purpose: This paper explores online sharing of copyrighted content over peer-to-peer (p2p) file sharing networks and its impact on the music industry, and assesses the viable business models for the industry going forward. Design/Methodology/Approach:We analyze the evolution of the online content market over the years that followed the widespread adoption of p2p. The paper is based on a Teaching Case by the authors, and builds on two related academic papers that provide the theoretical underpinnings for the analysis. 1Findings: Based on the early developments observed in this marketplace and the aforementioned theoretical work we argue that it is unfeasible to fully eradicate p2p, and so the industry must embrace it by understanding how consumers derive value from the technologies that enable it.Originality/Value: The developments analyzed here offer relevant insights for the online content marketplace, allow us to better understand the scope of strategies available to the music industry, and may provide lessons for other industries transitioning to online business models.
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