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Piracy prevention and the pricing of information goods

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  • Cremer, Helmuth
  • Pestieau, Pierre

Abstract

This paper studies the effects of piracy on prices and welfare and determines the optimal enforcement policy. A monopolist sells an information good at a non-linear price in two versions designed for two types of consumers with different willingness to pay. Consumers with low willingness to pay consumers can copy the good at some cost and with some quality loss. High valuation customers cannot engage in full-fledged piracy. However, they can consume the version designed for the other customer type. We show that copying or piracy may be welfare enhancing because it enables a good to be provided to individuals with a low willingness to pay without undermining the producing firm's ability to finance the development cost via the pricing scheme applied to high valuation consumers. There are then three levels of piracy control. The highest is that chosen by the private monopoly. The next level is the one chosen by a welfare-maximizing monopoly. The lowest level, which can be zero, is the level of control chosen by the public authority when the good is sold (and priced) by a profit-maximizing monopoly.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:iepoli:v:21:y:2009:i:1:p:34-42
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    References listed on IDEAS

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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. Yoon, Kiho, 2002. "The optimal level of copyright protection," Information Economics and Policy, Elsevier, vol. 14(3), pages 327-348, September.
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    7. Paul Belleflamme, 2002. "Pricing Information Goods in the Presence of Copying," Working Papers 463, Queen Mary University of London, School of Economics and Finance.
    8. Varian, Hal R, 2000. "Buying, Sharing and Renting Information Goods," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 473-488, December.
    9. Cremer, Helmuth & Laffont, Jean-Jacques, 2003. "Public goods with costly access," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1985-2012, September.
    10. Martin Peitz & Patrick Waelbroeck, 2003. "Piracy of Digital Products: A Critical Review of the Economics Literature," CESifo Working Paper Series 1071, CESifo Group Munich.
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    Citations

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    Cited by:

    1. Waters, James, 2013. "Pricing information goods with piracy and heterogeneous consumers," MPRA Paper 46918, University Library of Munich, Germany.
    2. Regner, Tobias & Riener, Gerhard, 2012. "Voluntary payments, privacy and social pressure on the internet: A natural field experiment," DICE Discussion Papers 82, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. Tsai, Ming-Fang & Chiou, Jiunn-Rong & Lin, Chun-Hung A., 2012. "A model of counterfeiting: A duopoly approach," Japan and the World Economy, Elsevier, vol. 24(4), pages 283-291.
    4. Chang, Yang-Ming & Walter, Jason, 2015. "Digital piracy: Price-quality competition between legal firms and P2P network hosts," Information Economics and Policy, Elsevier, vol. 31(C), pages 22-32.
    5. Choi, Pilsik & Bae, Sang Hoo & Jun, Jongbyung, 2010. "Digital piracy and firms' strategic interactions: The effects of public copy protection and DRM similarity," Information Economics and Policy, Elsevier, vol. 22(4), pages 354-364, December.
    6. Kogan, Konstantin & Ozinci, Yaacov & Perlman, Yael, 2013. "Containing piracy with product pricing, updating and protection investments," International Journal of Production Economics, Elsevier, vol. 144(2), pages 468-478.
    7. Éric Darmon & Thomas Le Texier, 2014. "Private or Public Law Enforcement? The Case of Digital Piracy Policies with Non-monitored Illegal Behaviors," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201403, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    8. Cho, Won-Young & Ahn, Byong-Hun, 2010. "Versioning of information goods under the threat of piracy," Information Economics and Policy, Elsevier, vol. 22(4), pages 332-340, December.

    More about this item

    Keywords

    Piracy Copying Intellectual property Information good;

    JEL classification:

    • 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
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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