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Accommodation or Deterrence in the Face of Commercial Piracy: the Impact of Intellectual Property Rights (IPR) Protection

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Author Info

  • Yuanzhu Lu

    () (China Economics and Management Academy, Central University of Finance and Economics)

  • Sougata Poddar

    () (Department of Economics and Finance, Hanyang University, Seoul Campus)

Abstract

In this paper, we address the issue of illegal copying or counterfeiting of the original product and Intellectual Property Rights (IPR) protections. The original product developer makes costly investment to deter piracy in a given regime of IPR protection. In the presence of a commercial pirate, we find that it is profitable for the original producer to accommodate the pirate when there is weak IPR protection, and deter when the IPR protection is strong. However, in the comparative statics analysis, we find that there is a non-monotonic relationship between the optimal level of deterrence (chosen by the original producer) and the degree of IPR protection in the economy. The relationship between the rate of piracy and IPR protection is found to be monotonically decreasing whereas the relationship between the rate of piracy and the quality of the pirated product turns out to be non-monotonic. On the other side, from the commercial pirate¡¯s point of view, the most profitable way to survive in the market is to produce a pirated product of moderate quality. Our model also provided a possible explanation of varying piracy rates across countries/regions.

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Bibliographic Info

Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 389.

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Length: 29 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:cuf:wpaper:389

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Web page: http://cema.cufe.edu.cn/
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Related research

Keywords: Piracy; Copyright violations; Raising rival¡¯s cost; Deterrence; Accommodation; Product quality;

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References

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  1. Bae, Sang Hoo & Choi, Jay Pil, 2006. "A model of piracy," Information Economics and Policy, Elsevier, vol. 18(3), pages 303-320, September.
  2. Joshua Slive & Dan Bernhardt, 1998. "Pirated for Profit," Canadian Journal of Economics, Canadian Economics Association, vol. 31(4), pages 886-899, November.
  3. Banerjee, Dyuti S., 2006. "Lobbying and commercial software piracy," European Journal of Political Economy, Elsevier, vol. 22(1), pages 139-155, March.
  4. Paul Belleflamme & Pierre M. Picard, 2004. "Piracy and Competition," CESifo Working Paper Series 1350, CESifo Group Munich.
  5. HÃ¥kan J. Holm, 2003. "Can economic theory explain piracy behavior?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 0(1), pages 5.
  6. Landes, William M & Posner, Richard A, 1989. "An Economic Analysis of Copyright Law," The Journal of Legal Studies, University of Chicago Press, vol. 18(2), pages 325-63, June.
  7. Antonio Rodriguez Andres, 2004. "The Relationship Between Software Protection And Piracy: Evidence From Europe," Law and Economics 0402001, EconWPA.
  8. Sougata Poddar, 2005. "Network Externality and Commercial Software Piracy," Departmental Working Papers wp0516, National University of Singapore, Department of Economics.
  9. Jin-Hyuk Kim, 2007. "Strategic Use of Copyright Protection to Deter Entry," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 47.
  10. Banerjee, Dyuti S., 2003. "Software piracy: a strategic analysis and policy instruments," International Journal of Industrial Organization, Elsevier, vol. 21(1), pages 97-127, January.
  11. Kiema, Ilkka, 2008. "Commercial piracy and intellectual property policy," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 304-318, October.
  12. Marron, Donald B & Steel, David G, 2000. "Which Countries Protect Intellectual Property? The Case of Software Piracy," Economic Inquiry, Western Economic Association International, vol. 38(2), pages 159-74, April.
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