Flexibility as an Instrument in Digital Rights Management.

We consider the optimal design of ‡exible use in a digital-rights-management policy. The basic model considers a single distributor of digital goods and a continuum of consumers. Each consumer can acquire the digital good either as a licensed product or as an unlicensed copy. The availablity of (or access to) unlicensed copies is increasing both in the number of licensed copies and in the ‡exibility accorded to licensed copies. We thus analyze the optimal design of ‡exibility in the presence of unlicensed distribution channels (the “greynet”). We augment the basic model by introducing a “secure platform” that is required to use the digital good. We compare the optimal design of ‡exibility in the presence of a platform to the one without a platform. Finally, we analyze the equilibrium provision when platform and