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Why do Software Manufacturers Tolerate Piracy in Transition and Less Developed Countries? A theoretical model


  • Michael Kunin


This paper provides an explanation as to why software manufacturers from developed countries tolerate widespread copyright infringement in less developed countries and often even offer local versions of their products. In a simple two-period framework, I show that if network externalities are present and an improvement in copyright enforcement is expected, then it is profitable for the software manufacturer to enter the market even if it incurs losses in the beginning when copyright enforcement is weak.

Suggested Citation

  • Michael Kunin, 2004. "Why do Software Manufacturers Tolerate Piracy in Transition and Less Developed Countries? A theoretical model," CERGE-EI Working Papers wp231, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  • Handle: RePEc:cer:papers:wp231

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    References listed on IDEAS

    1. Deardorff, Alan V, 1992. "Welfare Effects of Global Patent Protection," Economica, London School of Economics and Political Science, vol. 59(233), pages 35-51, February.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, July.
    3. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    4. Joshua Slive & Dan Bernhardt, 1998. "Pirated for Profit," Canadian Journal of Economics, Canadian Economics Association, vol. 31(4), pages 886-899, November.
    5. Michael Stolpe, 2000. "Protection Against Software Piracy: A Study Of Technology Adoption For The Enforcement Of Intellectual Property Rights," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 9(1), pages 25-52.
    6. Johnson, William R, 1985. "The Economics of Copying," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 158-174, February.
    7. Zigic, Kresimir, 1998. "Intellectual property rights violations and spillovers in North-South trade," European Economic Review, Elsevier, vol. 42(9), pages 1779-1799, November.
    8. Kathleen Reavis Conner & Richard P. Rumelt, 1991. "Software Piracy: An Analysis of Protection Strategies," Management Science, INFORMS, vol. 37(2), pages 125-139, February.
    9. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    10. M. Scott Taylor, 1993. "TRIPS, Trade, and Technology Transfer," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 625-637, August.
    11. Marron, Donald B & Steel, David G, 2000. "Which Countries Protect Intellectual Property? The Case of Software Piracy," Economic Inquiry, Western Economic Association International, vol. 38(2), pages 159-174, April.
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    More about this item


    Intellectual property rights; Software; Piracy; Transition; Network externalities.;

    JEL classification:

    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General


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