New Research Estimates Value of Removing DRM Locks

My co-authors and I at the University of Glasgow are investigating how restrictions on interoperability imposed by Digital Rights Management (DRM) systems might impact the market for goods. We are doing this as part of a larger project to better understand the economics of DRM and to figure out what changes would likely occur if the laws were reformed. Our recent working paper is titled ‘How much do consumers value interoperability: Evidence from the price of DVD players’.

Cory DoctorowWe use price data scraped from Amazon.com on all consumer DVD players listed since 2010 to analyse whether there is an increase in willingness-to-pay for players that have features related to interoperability. These features of interest include things like the lack of region controls, the ability to play legacy disc formats, and the ability to play new open file formats like Xvid. At first, DVD players might seem like an antiquated technology for such a study, but the product has many advantages: locked and unlocked players coexist side by side in the market and there are hundreds of competing devices on sale with similar capabilities, facilitating statistical analysis.

Our study is designed to begin to investigate some propositions about why consumers might value interoperability when choosing to purchase devices or content. There are numerous reasons why that might be the case. For example, people might value backwards interoperability between a device and other devices or content they already own. In a famous economics paper, Farrell & Saloner (1986) suggest that there are barriers to adoption of a new standard caused by network effects related to the number of people using the old standard. For example, maybe one’s friends and family use one system and moving to a new system would leave an early adopter out on a limb...