Monday, December 6, 2010

A new market for reselling digital goods

(Post by Bryan Drake, Leo Espindle, Eddie Liu, Hai Liu, Steve Yoshida)

Imagine a marketplace where consumers are able to sell used digital goods to each other. The envisioned marketplace essentially allows for increased price differentiation, which decreases deadweight loss caused by rigid pricing.

In this marketplace, Mary Moneybags is able to purchase a movie at the original price of $$$ from the retailer, and later has the right to sell the movie to Charlie Cheapo after a specified blackout period for a price of $$. To allow this capability, a small amount of money ($) is paid to the retailer as a fee to provide the clearinghouse, and, importantly, to the original content producer as well.

Under this framework, retailers benefit from charging a fee to provide an internet clearinghouse for resale content, and content producers benefit through the introduction of “droit de suite” for digital content, a rights law currently used in the European marketplace for fine art. We also anticipate that this system will reduce piracy, which costs an estimated $6 Billion a year in lost movie sales, and may introduce a type of social networking component to the marketplace so popular in physical used music stores.

The digital content marketplace is expanding in terms of offering content at various price points. The rental market, dominated by Netflix in the United States and including niche offerings in other countries such as eHit in Korea, allow consumers to spend less to consume content, but ultimately they do not own it. On the other end of the market, announced the ability to for users to “lend” eBooks via the Kindle marketplace for free to friends for a limited time. In light of these developments, the time certainly seems right for a full fledged digital resale market.

1 comment:

  1. Is druit de suite fully applicable? I’m wondering if we might find it helpful to make a distinction between purchases made purely for consumption versus as an asset (sometimes investment) - and consider the grey area left between.

    Many digital goods are purchased for consumption – that is one time use. Most people read a novel once, watch a movie once, watch a TV show once, play a game until their finished once, etc. Contrastingly, most paintings, sculptures, and some classic books are bought for reasons other than consumption - they become an asset which they derive many ongoing benefits - sometimes simply to appreciate in value.

    The current paradigm that we apply to the sale of digital goods maybe unnecessarily rooted in the traditional asset based approach – the origins of this maybe simply the result of the model of physical goods. If I only want to watch a movie once, why should I be burdened with this asset – priced higher, because the expectations are that it would be used multiple times?