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Can piracy lead to higher prices in the music and motion picture industries?

Author

Listed:
  • M Khouja

    (The University of North Carolina at Charlotte)

  • H K Rajagopalan

    (Francis Marion University)

Abstract

Piracy of copyrighted goods has received increased attention in the literature. Much of this research has focused on pricing policies, protection against piracy, and governmental policies in the software industries. In this paper, we focus on pricing policies of producers in the music and motion picture industries. Exact analytical results are difficult to obtain; therefore, we develop an approximating function of the cumulative demand. This enables us to obtain closed-form expressions for the optimal price. Our results show that the existence of piracy in these industries and the lack of positive network externalities may cause monopolists to charge higher prices to optimize profits. These prices increase with increases in the speed of piracy and longer product lifecycles. We demonstrate the accuracy of our demand approximation function using a numerical experiment. We show how a two-price strategy and dual distribution channels may help in reducing the negative effects of piracy. We perform some numerical sensitivity analysis and provide managerial insights.

Suggested Citation

  • M Khouja & H K Rajagopalan, 2009. "Can piracy lead to higher prices in the music and motion picture industries?," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 60(3), pages 372-383, March.
    • Handle: RePEc:pal:jorsoc:v:60:y:2009:i:3:d:10.1057_palgrave.jors.2602552
    DOI: 10.1057/palgrave.jors.2602552
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Khouja, Moutaz & Wang, Yulan, 2010. "The impact of digital channel distribution on the experience goods industry," European Journal of Operational Research, Elsevier, vol. 207(1), pages 481-491, November.
    3. Anna Maria Bagnasco, 2012. "Economia della pirateria filmica: una ricerca esplorativa," ECONOMIA E DIRITTO DEL TERZIARIO, FrancoAngeli Editore, vol. 2012(3), pages 433-448.
    4. Ning, Yu & Xu, Su Xiu & Yan, Mian & Huang, George Q., 2018. "Digital pricing with piracy and variety seeking," International Journal of Production Economics, Elsevier, vol. 206(C), pages 184-195.
    5. Ata Allah Taleizadeh & Mahsa Noori-daryan & Mohammad Reza Soltani & Reza Askari, 2022. "Optimal pricing and ordering digital goods under piracy using game theory," Annals of Operations Research, Springer, vol. 315(2), pages 931-968, August.
    6. Huang, Yeu-Shiang & Lin, Shin-Hua & Fang, Chih-Chiang, 2017. "Pricing and coordination with consideration of piracy for digital goods in supply chains," Journal of Business Research, Elsevier, vol. 77(C), pages 30-40.
    7. Huang, Yeu-Shiang & Huang, Wei-Jeh & Fang, Chih-Chiang, 2018. "Coordination for distribution of motion pictures in the context of piracy," Journal of Business Research, Elsevier, vol. 85(C), pages 209-225.
    8. Yu Ning & Su Xiu Xu & George Q. Huang & Xudong Lin, 2021. "Optimal digital product auctions with unlimited supply and rebidding behavior," Annals of Operations Research, Springer, vol. 307(1), pages 399-416, December.

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