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Turning Piracy into Profits: a Theoretical Investigation

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  • Minniti, Antonio
  • Vergari, Cecilia

Abstract

We analyse how the presence of a (private, small-scale) file-sharing community affects the profitability of producers of digital goods within a spatial duopoly model à la Hotelling (1929). Consumers can download pirated content by joining this file-sharing network. To gain access to the community, consumers have to buy and share a digital good with other members. We show that firms benefit from piracy in emerging markets, that is, markets that are not fully covered. The activity of file-sharing, in fact, allows firms to reach a larger share of customers who otherwise would not buy at all. This effect is missing in mature and widespread markets where firms prefer to be protected from piracy. Our results provide a rationale for the observation that in emerging countries, companies are unlikely to take a firm stance against piracy.

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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: 379-390

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Handle: RePEc:eee:iepoli:v:22:y:2010:i:4:p:379-390

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

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Keywords: File-sharing community Piracy Linear Spatial Model;

References

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  1. GABSZEWICZ, Jean J. & WAUTHY, Xavier Y., . "The option of joint purchase in vertically differentiated markets," CORE Discussion Papers RP -1667, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Wauthy, X., 1994. "Quality Choice in Models of Vertical Differentiation," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1994033, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  3. Paul Belleflamme & Pierre M. Picard, 2004. "Piracy and Competition," CESifo Working Paper Series 1350, CESifo Group Munich.
  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. Gayer, Amit & Shy, Oz, 2003. "Internet and peer-to-peer distributions in markets for digital products," Economics Letters, Elsevier, vol. 81(2), pages 197-203, November.
  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. Martin Peitz, 2004. "A Strategic Approach to Software Protection: Comment," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(2), pages 371-374, 06.
  8. Ben-Shahar Danny & Jacob Assaf, 2004. "Selective Enforcement of Copyright as an Optimal Monopolistic Behavior," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-31, September.
  9. SHY, Oz & THISSE, Jacques-François, . "A strategic approach to software protection," CORE Discussion Papers RP -1413, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Economides, Nicholas, 1984. "The principle of minimum differentiation revisited," European Economic Review, Elsevier, vol. 24(3), pages 345-368, April.
  11. 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.
  12. 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.
  13. Varian, Hal R, 2000. "Buying, Sharing and Renting Information Goods," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 473-88, December.
  14. Krishnan Ramayya & Smith Michael D. & Tang Zhulei & Telang Rahul, 2007. "Digital Business Models for Peer-to-Peer Networks: Analysis and Economic Issue," Review of Network Economics, De Gruyter, vol. 6(2), pages 1-20, June.
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Cited by:
  1. Kresimir Zigic & Jiri Strelicky & Michael Kunin, 2013. "The Interaction between Private and Public IPR Protection in a Software Market: A Positive and Normative Analysis," CERGE-EI Working Papers wp490, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  2. Jiri Strelicky & Kresimir Zigic, 2011. "Intellectual Property Rights Protection and Enforcement in a Software Duopoly," CERGE-EI Working Papers wp435, The Center for Economic Research and Graduate Education - Economic Institute, Prague.

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