Complementarities and network externalities in casually copied goods
AbstractIn 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 InfoArticle provided by University of Chile, Department of Economics in its journal Estudios de Economia.
Volume (Year): 29 (2002)
Issue (Month): 1 Year 2002 (June)
Copy protection; network externalities; indirect network effects; copying; complementarities.;
Find related papers by JEL classification:
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
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