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On Strategic Enabling of Product Piracy in the Market for Video Games

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  • Oliver Gürtler

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    Abstract

    In this paper, we consider the market for video games, where some firms are active in both, the market for video games hardware and software. It is puzzling that hardware can be easily made compatible with duplicated (i.e. pirated) software. We ask, whether there exist strategic reasons explaining this puzzle. Firms may, for example, enable software piracy in order to increase their market shares in the hardware market. This will indeed be true, if hardware prices are fixed and the market is completely covered. With endogenous prices, however, price reactions to enabling of product piracy will offset the increase in market shares and copy protection will be set at the highest possible level. If, on the other hand, the market is only partially covered, copy protection will be strategically reduced. In doing so, hardware firms shift reservation prices from the software to the more important hardware market.

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    File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse36_2005.pdf
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    Bibliographic Info

    Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse36_2005.

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    Length: 29
    Date of creation: Nov 2005
    Date of revision:
    Handle: RePEc:bon:bonedp:bgse36_2005

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    Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
    Fax: +49 228 73 6884
    Web page: http://www.bgse.uni-bonn.de

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    Keywords: Video Games Market; Product Piracy; Fundamental Transformation;

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    1. 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.
    2. Martin Peitz, 2004. "A Strategic Approach to Software Protection: Comment," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(2), pages 371-374, 06.
    3. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-50, September.
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    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.
    8. 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).
    9. 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.
    10. Johnson, William R, 1985. "The Economics of Copying," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 158-74, February.
    11. Kathleen Reavis Conner & Richard P. Rumelt, 1991. "Software Piracy: An Analysis of Protection Strategies," Management Science, INFORMS, vol. 37(2), pages 125-139, February.
    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. Martin Peitz & Patrick Waelbroeck, 2003. "Piracy of Digital Products: A Critical Review of the Economics Literature," CESifo Working Paper Series 1071, CESifo Group Munich.
    14. Diana M. Burton & H. Alan Love & Gokhan Ozertan & Curtis R. Taylor, 2005. "Property Rights Protection of Biotechnology Innovations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(4), pages 779-812, December.
    15. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    16. 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.
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