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Does Reliable Pirated Product Lead to More Piracy?

  • Yuanzhu Lu

    ()

    (China Economics and Management Academy, Central University of Finance and Economics, Beijing, China.)

  • Sougata Poddar

    ()

    (Department of Economics, Auckland University of Technology, Auckland, New Zealand.)

Conventional wisdom would suggest if a pirated product, which is cheaper than the original product, becomes more reliable then the relative demand of the pirated product or the rate of piracy will increase when consumers have different willingness to pay. However, is this always true? We address this question in a framework where the original product developer makes costly investment to deter pirate(s) in a given regime of IPR protection. We show that the relationship between the rate of piracy and the reliability of the pirated product depends on the nature of the pirate as well as on the nature of the market competition if the pirate is commercial. Under commercial piracy, when the original firm and the pirate compete in quantities, the conventional wisdom holds i.e. the more reliable the pirated product, the higher is the rate of piracy. However, the relationship is non-monotonic, hence the wisdom does not hold when they compete in prices or the pirates are the end-users.

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File URL: http://www.aut.ac.nz/__data/assets/pdf_file/0010/299647/WP-2012-05-new.pdf
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Paper provided by Auckland University of Technology, Department of Economics in its series Working Papers with number 2012-05.

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Length: 28 pages
Date of creation: May 2012
Date of revision:
Handle: RePEc:aut:wpaper:201205
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  1. Yuanzhu Lu & Sougata Poddar, 2012. "Accommodation or deterrence in the face of commercial piracy: the impact of intellectual property rights protection," Oxford Economic Papers, Oxford University Press, vol. 64(3), pages 518-538, July.
  2. Banerjee, Dyuti S., 2006. "Lobbying and commercial software piracy," European Journal of Political Economy, Elsevier, vol. 22(1), pages 139-155, March.
  3. Sougata Poddar, 2005. "Network Externality and Commercial Software Piracy," Departmental Working Papers wp0516, National University of Singapore, Department of Economics.
  4. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  5. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  6. Banerjee, Dyuti S., 2003. "Software piracy: a strategic analysis and policy instruments," International Journal of Industrial Organization, Elsevier, vol. 21(1), pages 97-127, January.
  7. Kiema, Ilkka, 2008. "Commercial piracy and intellectual property policy," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 304-318, October.
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