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Does Reliable Pirated Product Lead to More Piracy?

Author

Listed:
  • 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.)

Abstract

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.

Suggested Citation

  • Yuanzhu Lu & Sougata Poddar, 2012. "Does Reliable Pirated Product Lead to More Piracy?," Working Papers 2012-05, Auckland University of Technology, Department of Economics.
  • Handle: RePEc:aut:wpaper:201205
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    References listed on IDEAS

    as
    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    2. Joshua Slive & Dan Bernhardt, 1998. "Pirated for Profit," Canadian Journal of Economics, Canadian Economics Association, vol. 31(4), pages 886-899, November.
    3. Sougata Poddar, 2005. "Network Externality and Commercial Software Piracy," Departmental Working Papers wp0516, National University of Singapore, Department of Economics.
    4. 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.
    5. Banerjee, Dyuti S., 2006. "Lobbying and commercial software piracy," European Journal of Political Economy, Elsevier, vol. 22(1), pages 139-155, March.
    6. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
    7. 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.
    8. Kiema, Ilkka, 2008. "Commercial piracy and intellectual property policy," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 304-318, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    IPR protections; price competition; quantity competition; product quality.;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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