The impact of digital channel distribution on the experience goods industry

We explore the impact of a digital channel for experience goods on the profitability and behavior of players in the supply chain and on piracy. We consider a firm which can sell an experience good in physical form, in digitized form, or both. We analyze different pricing schemes – price for whole album on the retail channel and linear and nonlinear pricing for songs on the digital channel. Consumers are divided into a retail-captive segment whose consumers are limited to the retail channel and a hybrid segment whose consumers have access to both retail and digital channels.