Abstract
Given the degrees of freedom on the internet and the ease of obtaining perfect replicates of digital music files, internet piracy of digital music is a serious free-riding problem that has become a social phenomenon. We argue that using the pirated digital music as a promotional tool could be beneficial to the record labels by increasing consumers' brand premium value. In this paper, we present the preliminary design of a self-selection model on optimal pricing of digital music. The model provides strategies to the recording industry to effectively price its products with the co-existence of piracy.
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