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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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    Cited by:

    1. Waters, James, 2013. "Pricing information goods with piracy and heterogeneous consumers," MPRA Paper 46918, University Library of Munich, Germany.
    2. Bae Sang Hoo & Yoo Kyeongwon, 2021. "Is Imitation Bad for the Production of Creative Works?," Review of Network Economics, De Gruyter, vol. 19(2), pages 115-144, January.
    3. Žigić, Krešimir & Střelický, Jiří & Kúnin, Michael, 2023. "Copyright and firms’ own IPR protection in a software market: Monopoly versus duopoly," Economic Modelling, Elsevier, vol. 123(C).
    4. Regner, Tobias & Riener, Gerhard, 2012. "Voluntary payments, privacy and social pressure on the internet: A natural field experiment," DICE Discussion Papers 82, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    5. Tobias Regner & Gerhard Riener, 2017. "Privacy Is Precious: On the Attempt to Lift Anonymity on the Internet to Increase Revenue," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(2), pages 318-336, June.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. Robert Gmeiner, 2019. "Innovation, Theft, and Market Structure," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 47(3), pages 243-260, September.
    11. Paulomi Basu & Tanmoyee Banerjee, 2018. "A Theoretical Analysis Of Product Versioning In The Context Of Commercial Piracy," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 63(219), pages 115-136, October –.
    12. T. Randolph Beard & George S. Ford & Gilad Sorek & Lawrence J. Spiwak, 2018. "Piracy, Imitation, and Optimal Copyright Policy," Southern Economic Journal, John Wiley & Sons, vol. 84(3), pages 815-830, January.
    13. Yuanzhu Lu & Sougata Poddar, 2019. "Limiting End-user Piracy - The Role of Private and Public Anti-Piracy Measure," Annals of Economics and Finance, Society for AEF, vol. 20(1), pages 181-197, May.
    14. 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.
    15. 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.
    16. Basu, Paulomi & Banerjee , Tanmoyee & Mitra, Santanu, 2022. "An Experimental Understanding of Transaction Utility in Piracy," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 47(4), pages 123-141, December.

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    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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