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Piracy prevention and the pricing of information goods

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Author Info

  • Cremer, Helmuth
  • Pestieau, Pierre

Abstract

This paper studies the effects of piracy on prices and welfare and determines the optimal enforcement policy. A monopolist sells an information good at a non-linear price in two versions designed for two types of consumers with different willingness to pay. Consumers with low willingness to pay consumers can copy the good at some cost and with some quality loss. High valuation customers cannot engage in full-fledged piracy. However, they can consume the version designed for the other customer type. We show that copying or piracy may be welfare enhancing because it enables a good to be provided to individuals with a low willingness to pay without undermining the producing firm's ability to finance the development cost via the pricing scheme applied to high valuation consumers. There are then three levels of piracy control. The highest is that chosen by the private monopoly. The next level is the one chosen by a welfare-maximizing monopoly. The lowest level, which can be zero, is the level of control chosen by the public authority when the good is sold (and priced) by a profit-maximizing monopoly.

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Bibliographic Info

Article provided by Elsevier in its journal Information Economics and Policy.

Volume (Year): 21 (2009)
Issue (Month): 1 (February)
Pages: 34-42

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Handle: RePEc:eee:iepoli:v:21:y:2009:i:1:p:34-42

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Web page: http://www.elsevier.com/locate/inca/505549

Related research

Keywords: Piracy Copying Intellectual property Information good;

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References

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  1. Varian, Hal R, 2000. "Buying, Sharing and Renting Information Goods," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 473-88, December.
  2. Bae, Sang Hoo & Choi, Jay Pil, 2006. "A model of piracy," Information Economics and Policy, Elsevier, vol. 18(3), pages 303-320, September.
  3. Oz Shy & Jacques-Françlois Thisse, 1999. "A Strategic Approach to Software Protection," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(2), pages 163-190, 06.
  4. Paul Romer, 2002. "When Should We Use Intellectual Property Rights?," American Economic Review, American Economic Association, vol. 92(2), pages 213-216, May.
  5. Laffont, Jean-Jacques & Cremer, Helmuth, 2000. "Public Goods with Costly Access," IDEI Working Papers 98, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2001.
  6. Yoon, Kiho, 2002. "The optimal level of copyright protection," Information Economics and Policy, Elsevier, vol. 14(3), pages 327-348, September.
  7. Takeyama, Lisa N, 1994. "The Welfare Implications of Unauthorized Reproduction of Intellectual Property in the Presence of Demand Network Externalities," Journal of Industrial Economics, Wiley Blackwell, vol. 42(2), pages 155-66, June.
  8. Martin Peitz & Patrick Waelbroeck, 2003. "Piracy of Digital Products: A Critical Review of the Economics Literature," CESifo Working Paper Series 1071, CESifo Group Munich.
  9. Paul Belleflamme, 2002. "Pricing Information Goods in the Presence of Copying," Working Papers 463, Queen Mary, University of London, School of Economics and Finance.
  10. Liebowitz, S J, 1985. "Copying and Indirect Appropriability: Photocopying of Journals," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 945-57, October.
  11. Besen, Stanley M & Kirby, Sheila Nataraj, 1989. "Private Copying, Appropriability, and Optimal Copying Royalties," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages 255-80, October.
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Citations

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Cited by:
  1. Tsai, Ming-Fang & Chiou, Jiunn-Rong & Lin, Chun-Hung A., 2012. "A model of counterfeiting: A duopoly approach," Japan and the World Economy, Elsevier, vol. 24(4), pages 283-291.
  2. Tobias Regner & Gerhard Riener, 2013. "Voluntary Payments, Privacy and Social Pressure on the Internet: A Natural Field Experiment," Jena Economic Research Papers 2013-032, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. Waters, James, 2013. "Pricing information goods with piracy and heterogeneous consumers," MPRA Paper 46918, University Library of Munich, Germany.
  4. Cho, Won-Young & Ahn, Byong-Hun, 2010. "Versioning of information goods under the threat of piracy," Information Economics and Policy, Elsevier, vol. 22(4), pages 332-340, December.
  5. Kogan, Konstantin & Ozinci, Yaacov & Perlman, Yael, 2013. "Containing piracy with product pricing, updating and protection investments," International Journal of Production Economics, Elsevier, vol. 144(2), pages 468-478.
  6. Choi, Pilsik & Bae, Sang Hoo & Jun, Jongbyung, 2010. "Digital piracy and firms' strategic interactions: The effects of public copy protection and DRM similarity," Information Economics and Policy, Elsevier, vol. 22(4), pages 354-364, December.

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