DIGITAL DOWNLOADS AND THE EXTINCTION OF RESALE MARKETS FOR INFORMATION GOODS

The U.S. first sale doctrine guarantees the right to resell purchased, copyrighted, durables, but does not apply, for all intents and purposes, to information goods when they are distributed via digital download. iTunes and the Kindle store are just two of many examples showing that information good industries are moving towards a digital download distribution model. Because information goods are perfectly durable, exhibit owner-specific depreciation, and have zero marginal cost, firms prefer to curtail resale. The impact on consumers is ambiguous. The effect of prohibiting resale is analyzed empirically in the context of video games. First, using a novel dataset including new and used game sales, demand parameters are estimated using a dynamic structural model. Simulations can then be used to determine the impact of shutting down resale markets.