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Piracy Accommodation and the Optimal Timing of Royalty Payments

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Author Info
Alan E. Woodfield () (University of Canterbury)

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Abstract

This paper generalizes the two-period model of Watt (2000) who demonstrates the possibility of optimal accommodation of a pirate when the royalty rate applying to a creation is uniform and second-period Cournot competition applies. Admitting nonlinear contracts with period-specific royalty rates that leave total payments unchanged, simulation analysis shows that a producer of originals does better to increase the royalty rate in period 1 and decrease the rate to a negative level in period 2, thereby more than offsetting the usual cost advantage available to a pirate. Watt's illustrative examples regarding piracy accommodation (but not piracy exclusion) are overturned when a nonlinear contract is chosen optimally, although accommodation remains optimal in some other cases. Further, where exclusion is impossible under uniform royalties, cases exist where exclusion is feasible under nonlinear royalties. Even so, accommodation may be a preferable strategy.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/0601.pdf
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Publisher Info
Paper provided by University of Canterbury, Department of Economics in its series Working Papers in Economics with number 06/01.

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Length: 31 pages
Date of creation: 01 Feb 2006
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Handle: RePEc:cbt:econwp:06/01

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Related research
Keywords: accommodating copyright piracy nonlinear royalty contracts

Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
K11 - Law and Economics - - Basic Areas of Law - - - Property Law
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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  1. Bakos, Yannis & Brynjolfsson, Erik & Lichtman, Douglas, 1999. "Shared Information Goods," Journal of Law & Economics, University of Chicago Press, vol. 42(1), pages 117-55, April.
  2. Takeyama, Lisa N, 1997. "The Intertemporal Consequences of Unauthorized Reproduction of Intellectual Property," Journal of Law & Economics, University of Chicago Press, vol. 40(2), pages 511-22, October.
  3. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March. [Downloadable!] (restricted)
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  4. 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. [Downloadable!] (restricted)
  5. Johnson, William R, 1985. "The Economics of Copying," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 158-74, February. [Downloadable!] (restricted)
  6. Stan Liebowitz, 2005. "Economists’ Topsy-Turvy View of Piracy," Law and Economics 0505002, EconWPA. [Downloadable!]
  7. 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. [Downloadable!] (restricted)
  8. Besen, Stanley M & Kirby, Sheila Nataraj, 1989. "Private Copying, Appropriability, and Optimal Copying Royalties," Journal of Law & Economics, University of Chicago Press, vol. 32(2), pages 255-80, October.
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