Piracy Prevention and the Pricing of Information Goods
AbstractThis paper develops a simple model of piracy to analyze its effects on prices and welfare and to study the optimal enforcement policy. A monopolist produces an information good (involving a 'large' development cost and a 'small' reproduction cost) that is sold to two groups of consumers differing in their valuation of the good. We distinguish two settings: one in which the monopoly is regulated and one in which it maximizes profits and is not regulated, except that the public authority may be responsible for the control of piracy. We show that copying or piracy might be welfare enhancing because it is a way to 'provide' the good to some individuals (those with a low willingness to pay) without undermining the firm’s ability to finance the development cost via the pricing scheme applied to high valuation consumers. The level of piracy control differs according to the regulatory environment. Three levels of piracy control emerge. The highest is the one chosen by the private monopoly. The next level is the one chosen by the regulated monopoly. The lowest, that can be zero, is the level of control chosen by the public authority when the good is sold (and priced) by a private monopoly.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5556.
Date of creation: Mar 2006
Date of revision:
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Other versions of this item:
- Cremer, Helmuth & Pestieau, Pierre, 2009. "Piracy prevention and the pricing of information goods," Information Economics and Policy, Elsevier, vol. 21(1), pages 34-42, February.
- CREMER, Helmuth & PESTIEAU, Pierre, 2006. "Piracy prevention and the pricing of information goods," CORE Discussion Papers 2006018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-04-08 (All new papers)
- NEP-COM-2006-04-08 (Industrial Competition)
- NEP-MIC-2006-04-08 (Microeconomics)
- NEP-REG-2006-04-08 (Regulation)
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