Center for Advanced Management




Prof. Karl Reiner Lang (University of New York)


  • Datum: 25.11.2009
    17:15 - 18:45
    Raum 211b, Ludwigstr. 28

    Designing Markets for Co- Production of Digital Culture Goods: Experimental Examination of Content Reuse Licensing

    Digital culture products are easily reproduced, easily distributed, and subject to boundless alteration, extension and recombination. We define transmutation as the reuse, modification, and recombination of content across cultural domains, including remix (music), mashups (video), mods (games), collage (fine arts), cutup (literature) etc.  These newly developing digital transmutation capabilities set the stage for the emergence of markets for co-production of cultural content. This presentation discusses two market structures using two different licensing arrangements. First, we consider a consumer market that offers products with content access and reuse rights (transmutation rights) for personalization in the post-purchase environment. Second, we consider a sourcing market where producers can trade transmutation rights and thus license content for reuse in production processes.  Our main goal in this research is to examine how the introduction of transmutation rights affects markets for content production from both the producer and the consumer perspective. We model digital culture products in a stylized manner focusing primarily on capturing the key properties that enable the emergence of co-production markets: component-based design, transmutability, and strong differences in demand preferences and cost structure. With that in mind, we present an original electronic market design and an exploratory experimental study that compares how the two particular content licensing schemes impact market performance in terms of surplus and service levels. More specifically, we address the following four questions in our research.

    1. Can we design markets that would provide incentives to monopolies for sharing content with other producers (producer perspective)?
    2. What are the welfare effects of opening content to consumers (consumer perspective)?
    3. Which of the two types of transmutation rights (producer-based or consumer-based) is economically more efficient?
    4. How does the presence of consumer piracy affect co-production markets?

    Based on our experimental data we offer the following answers to these questions.  (1) The presence of transmutation rights diffuses monopoly power without hurting producers’ profits. Some profit-maximizing content monopolists will open access to their products in exchange for higher consumer prices or the ability to collect reuse license fees.  (2) Introducing consumer transmutation rights to the market creates surplus through increased product selection and higher prices for core products.  (3) While both producer-based and consumer-based transmutation rights create value, our experiments did not indicate whether one is economically more efficient than the other. (4) At moderate levels of piracy, producers who respond strategically and shift their focus to offering core products retain their profitability. But if piracy becomes rampant it creates a wealth transfer away from producers and destroys the market.
    These results have interesting business strategy implications. Enabled by digital transmutation capabilities that extend to both producers and consumers of cultural goods, collaborative creation based on licensed content reuse increases economic efficiency and generates social welfare benefits are robust in the presence of moderate consumer piracy. Consumer piracy reduces but not necessarily destroys producer profits. We conclude that cultural goods markets can tolerate certain levels of piracy if creative consumers focus on producing derivatives for the long tail whose demand would otherwise go unfulfilled. Producers and consumers become strategic partners who need to collaborate in order to cost-effectively increase differentiation and also to contain piracy.