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Digital piracy and firms' strategic interactions: The effects of public copy protection and DRM similarity

  • Choi, Pilsik
  • Bae, Sang Hoo
  • Jun, Jongbyung
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    The purpose of this paper is to investigate how different types of strategic interaction affect firms' optimal levels of digital rights management (DRM). In our game-theoretical duopoly model, the firms do not directly compete with prices, but they become interdependent while coping with digital piracy. Our analysis shows that (1) stricter public copy protection by the government leads to lower DRM levels and more piracy when the firms regard their DRM levels as "strategic substitutes," but to higher DRM levels and less piracy when the firms perceive their DRM levels as "strategic complements," and (2) a higher degree of similarity between the DRM systems leads to lower DRM levels and more piracy. We also discuss the policy implications of these findings.

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    File URL: http://www.sciencedirect.com/science/article/B6V8J-51726N7-1/2/2b24bd5cf2361e0cdbce3bb066772215
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    Article provided by Elsevier in its journal Information Economics and Policy.

    Volume (Year): 22 (2010)
    Issue (Month): 4 (December)
    Pages: 354-364

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    Handle: RePEc:eee:iepoli:v:22:y:2010:i:4:p:354-364
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505549

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    1. Yooki Park & Suzanne Scotchmer, 2004. "Digital Rights Management and the Pricing of Digital Products," Working Papers 04-09, NET Institute, revised Oct 2004.
    2. 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).
    3. Johnson, William R, 1985. "The Economics of Copying," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 158-74, February.
    4. Yoon, Kiho, 2002. "The optimal level of copyright protection," Information Economics and Policy, Elsevier, vol. 14(3), pages 327-348, September.
    5. Paul Belleflamme & Pierre M. Picard, 2004. "Piracy and Competition," CESifo Working Paper Series 1350, CESifo Group Munich.
    6. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    7. Stanley M. Besen & Leo J. Raskind, 1991. "An Introduction to the Law and Economics of Intellectual Property," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 3-27, Winter.
    8. Liebowitz, S J, 1985. "Copying and Indirect Appropriability: Photocopying of Journals," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 945-57, October.
    9. Bae, Sang Hoo & Choi, Jay Pil, 2006. "A model of piracy," Information Economics and Policy, Elsevier, vol. 18(3), pages 303-320, September.
    10. Novos, Ian E & Waldman, Michael, 1984. "The Effects of Increased Copyright Protection: An Analytic Approach," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 236-46, April.
    11. Peitz, Martin & Waelbroeck, Patrick, 2006. "Piracy of digital products: A critical review of the theoretical literature," Information Economics and Policy, Elsevier, vol. 18(4), pages 449-476, November.
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