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Turning Piracy into Profits: a Theoretical Investigation

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  • Minniti, Antonio
  • Vergari, Cecilia

Abstract

We analyse how the presence of a (private, small-scale) file-sharing community affects the profitability of producers of digital goods within a spatial duopoly model à la Hotelling (1929). Consumers can download pirated content by joining this file-sharing network. To gain access to the community, consumers have to buy and share a digital good with other members. We show that firms benefit from piracy in emerging markets, that is, markets that are not fully covered. The activity of file-sharing, in fact, allows firms to reach a larger share of customers who otherwise would not buy at all. This effect is missing in mature and widespread markets where firms prefer to be protected from piracy. Our results provide a rationale for the observation that in emerging countries, companies are unlikely to take a firm stance against piracy.

Suggested Citation

  • Minniti, Antonio & Vergari, Cecilia, 2010. "Turning Piracy into Profits: a Theoretical Investigation," Information Economics and Policy, Elsevier, vol. 22(4), pages 379-390, December.
  • Handle: RePEc:eee:iepoli:v:22:y:2010:i:4:p:379-390
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    References listed on IDEAS

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    Cited by:

    1. Wu, Chien-Wei & Gong, Jyh-Chyi & Chiu, Hsien-Hung, 2016. "Duopoly competition with non-deceptive counterfeiters," International Review of Law and Economics, Elsevier, vol. 47(C), pages 33-40.
    2. repec:eee:jbrese:v:85:y:2018:i:c:p:209-225 is not listed on IDEAS
    3. Waters, James, 2015. "Welfare implications of piracy with dynamic pricing and heterogeneous consumers," European Journal of Operational Research, Elsevier, vol. 240(3), pages 904-911.
    4. Kresimir Zigic & Jiri Strelicky & Michael Kunin, 2013. "The Interaction between Private and Public IPR Protection in a Software Market: A Positive and Normative Analysis," CERGE-EI Working Papers wp490, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    5. Komarova, Anastasiya & Kurdin, Alexander, 2014. "The impact of digital piracy on market strategies in software," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, pages 54-75, December.
    6. Kresimir Zigic & Jiri Strelicky & Michael Kunin, 2014. "How Does Public IPR Protection Affect its Private Counterpart? Copyright and the Firms' Own IPR Protection in a Software Duopoly," CERGE-EI Working Papers wp518, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    7. Jiri Strelicky & Kresimir Zigic, 2011. "Intellectual Property Rights Protection and Enforcement in a Software Duopoly," CERGE-EI Working Papers wp435, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    8. Kresimir Zigic & Jiri Strelicky & Michael Kunin, 2015. "Modeling Software Piracy Protection: Monopoly versus Duopoly," CERGE-EI Working Papers wp551, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

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