In the following, we examine a market of a digital consumption good with monopolistic supply. In this market, it is the ability of the consumer to bypass (”crack”) the copy-protection of the monopolist which induces a lower price of the digital good, compared to an uncontested monopoly (textbook case). We analyze the complex relationship between the cracking efforts of the consumer, the copy-protection efforts and the pricing decision of the monopolist, and the welfare of the economy. We find, for example, that the monopolist will deter piracy if the (exogenous) relative effectiveness of the consumer’s bypassing activity is low compared to the copy-protection technology. In this case welfare is lower than the welfare in the textbook case. On the contrary, welfare rises above the textbook case level if the relative effectiveness of cracking is sufficiently high.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
3289.
Find related papers by JEL classification: D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
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