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Complementarities and network externalities in casually copied goods

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  • David Blackburn

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Abstract

In this paper, we examine the impacts of casual copying in the market for goods that have strong network externalities and/or are strong complements with goods in another market. By allowing casual copying to occur, the monopolist triggers two effects. The "copying effect" reduces demand (and thus profits) due the introduction of a better outside alternative to consumers. However, a "network augmenting" effect works to increase demand through the larger size of a network that allows copying. We find that if the marginal network externality is large enough, the monopolist will find it profitable to allow some level of casual copying to occur among non-purchasers of the good. And in a simplified dynamic setting, we find that as time passes and the good’s network becomes more mature, the monopolist will seek higher and higher levels of copy protection. This implies that firms in newly formed markets should be more willing to allow copying to occur than those in established markets.

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Bibliographic Info

Article provided by University of Chile, Department of Economics in its journal Estudios de Economia.

Volume (Year): 29 (2002)
Issue (Month): 1 Year 2002 (June)
Pages: 71-88

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Handle: RePEc:udc:esteco:v:29:y:2002:i:1:p:71-88

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Web page: http://www.econ.uchile.cl/
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Related research

Keywords: Copy protection; network externalities; indirect network effects; copying; complementarities.;

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References

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  1. Bakos, Yannis & Brynjolfsson, Erik & Lichtman, Douglas, 1999. "Shared Information Goods," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 117-55, April.
  2. 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.
  3. Takeyama, Lisa N, 1997. "The Intertemporal Consequences of Unauthorized Reproduction of Intellectual Property," Journal of Law and Economics, University of Chicago Press, vol. 40(2), pages 511-22, October.
  4. 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.
  5. Economides, Nicholas, 1996. "Network externalities, complementarities, and invitations to enter," European Journal of Political Economy, Elsevier, vol. 12(2), pages 211-233, September.
  6. Andrea Shepard, 1987. "Licensing to Enhance Demand for New Technologies," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 360-368, Autumn.
  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.
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Cited by:
  1. Gil Ricard, 2006. "The Economics of IPR Protection Policies," Review of Network Economics, De Gruyter, vol. 5(3), pages 1-21, September.

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