Resale Royalties for Digital Goods

Abstract

In recent years, the resale market for digital goods has grown substantially, enabled by blockchain smart contracts that enable and enforce resale royalties. This paper explores the economic impact of these resale royalties on digital goods and examines whether firms should monetize digital products solely through secondary market royalties or use a combination of primary and secondary sales. Using a game-theoretic model, we analyze a monopolistic seller's optimal pricing and royalty strategies in a market where resale is either prohibited or allowed with royalties. Our findings suggest that enforcing resale royalties through blockchain smart contracts can increase profitability by capturing revenue from secondary sales. Additionally, we demonstrate that the decision to implement royalties depends on market conditions, including the depreciation rate of goods and the relative size of the secondary market. These insights contribute to economic theory and offer practical guidance for firms navigating the evolving digital goods market.