Abstract
We develop a model in which software developers react to anticipated digital piracy either by undercutting piracy or by acquiring digital rights management (DRM) technology from a third-party DRM provider. DRM delays pirated copies to an uncertain future time, incentivizing impatient consumers to purchase a legitimate copy immediately. DRM, however, is a source of disutility for users. The somewhat counter-intuitive key results are that developers increase expected profit by credibly agreeing upon release to remove DRM from legitimate copies once DRM has been cracked, but it is not necessarily true that the eventual removal of DRM increases expected buyer welfare relative to indefinitely retained DRM.
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