UC San Diego

My dissertation explores how negative externalities can be profitably managed

in the entertainment and software industry.

In Chapter 1, I study a movie studio's pricing and channeling decisions

when releasing a product to congestion-sensitive consumers. Over the past fifteen

years, the length of time between when a movie is released in theaters to when it

is first released on another channel has decreased from seven months on average

to about 110 days. In recent years, more films have been skipping theatrical release

entirely and going directly to home video. In some cases, studios are even

experimenting with day-and-date strategies, distributing a new release across two

or more distinct channels on the same day. Working with Terrence August and

Hyoduk Shin, I develop a game-theoretic model of film distribution and consumption

to gain insight into how studios should optimally price and time the release

of video versions of their films, given that consumers are making strategic decisions

about how to consume the product. We characterize conditions under which

direct-to-video, day-and-date, and delayed release strategies maximize profitability

for a studio.

In Chapters 2 and 3, together with Terrence August and Kihoon Kim, I

investigate pricing mechanisms to improve cybersecurity. In Chapter 2, we establish

how software vendors can differentiate their products based on the provision of

patching rights and how the optimal pricing of these rights can segment the market

in a manner that leads to both greater security and greater profitability. We characterize

the price for these rights, the discount provided to those who relinquish

rights and have their systems automatically updated, and the consumption and

protection strategies taken by users in equilibrium as they strategically interact due

to the security externality associated with product vulnerabilities. We quantify the

effectiveness of priced patching rights and its impact on welfare. In Chapter 3, we

study the ability of taxes to achieve an analogous effect in the open-source domain.

In this domain, we demonstrate why large populations of unpatched users remain

even when automatic updating is available, and then characterize how taxes on

patching rights should optimally be structured.