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Digital piracy and firms' strategic interactions: The effects of public copy protection and DRM similarity

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  • Choi, Pilsik
  • Bae, Sang Hoo
  • Jun, Jongbyung
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    Abstract

    The purpose of this paper is to investigate how different types of strategic interaction affect firms' optimal levels of digital rights management (DRM). In our game-theoretical duopoly model, the firms do not directly compete with prices, but they become interdependent while coping with digital piracy. Our analysis shows that (1) stricter public copy protection by the government leads to lower DRM levels and more piracy when the firms regard their DRM levels as "strategic substitutes," but to higher DRM levels and less piracy when the firms perceive their DRM levels as "strategic complements," and (2) a higher degree of similarity between the DRM systems leads to lower DRM levels and more piracy. We also discuss the policy implications of these findings.

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    Bibliographic Info

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

    Volume (Year): 22 (2010)
    Issue (Month): 4 (December)
    Pages: 354-364

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    Handle: RePEc:eee:iepoli:v:22:y:2010:i:4:p:354-364

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

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    Keywords: Piracy Digital goods Digital rights management (DRM) Strategic substitutes Strategic complements;

    References

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    1. Novos, Ian E & Waldman, Michael, 1984. "The Effects of Increased Copyright Protection: An Analytic Approach," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 236-46, April.
    2. Cremer, Helmuth & Pestieau, Pierre, 2009. "Piracy prevention and the pricing of information goods," Information Economics and Policy, Elsevier, vol. 21(1), pages 34-42, February.
    3. Yooki Park & Suzanne Scotchmer, 2004. "Digital Rights Management and the Pricing of Digital Products," Working Papers 04-09, NET Institute, revised Oct 2004.
    4. Johnson, William R, 1985. "The Economics of Copying," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 158-74, February.
    5. Paul Belleflamme & Pierre M. Picard, 2004. "Piracy and Competition," CESifo Working Paper Series 1350, CESifo Group Munich.
    6. Peitz, Martin & Waelbroeck, Patrick, 2006. "Piracy of digital products: A critical review of the theoretical literature," Information Economics and Policy, Elsevier, vol. 18(4), pages 449-476, November.
    7. Yoon, Kiho, 2002. "The optimal level of copyright protection," Information Economics and Policy, Elsevier, vol. 14(3), pages 327-348, September.
    8. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    9. Bae, Sang Hoo & Choi, Jay Pil, 2006. "A model of piracy," Information Economics and Policy, Elsevier, vol. 18(3), pages 303-320, September.
    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. Stanley M. Besen & Leo J. Raskind, 1991. "An Introduction to the Law and Economics of Intellectual Property," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 3-27, Winter.
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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. Éric Darmon & Thomas Le Texier, 2014. "Private or Public Law Enforcement? The Case of Digital Piracy Policies with Non-monitored Illegal Behaviors," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201403, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.

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