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Anti-piracy policy and quality differential in markets for information goods

  • Francisco Martínez-Sánchez

    ()

    (Universidad de Alicante)

  • Javier M. López Cuñat

    (Universidad de Alicante)

In this paper we analyze the strategic decisions of the government, the incumbent and the pirate in a market where the good is piratable. We show that deterred or accommodated piracy can occur in equilibrium, but pure monopoly cannot occur for any anti-piracy policy. We also show that the initial quality differential between the original and the pirated product is essential to explain the effects of an increase in the quality of pirated product on both the level of piracy and the optimal monitoring rate. Assuming a one-stage entry process and a sufficiently high quality differential, we prove that the incumbent always prefers to move first and make a credible commitment to a price. However, this is not true with a two-stage entry process.

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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2011-02.

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Length: 26 pages
Date of creation: Jan 2011
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2011-02
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  1. Crampes, C. & Hollander, A., 1992. "Duopoly and Quality Standards," Papers 92.g, Toulouse - GREMAQ.
  2. Luis J. Hall, 2010. "Differentiated social interactions in the US schooling race gap," Working Papers. Serie AD 2010-17, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. van der Leij Marco & Goyal Sanjeev, 2011. "Strong Ties in a Small World," Review of Network Economics, De Gruyter, vol. 10(2), pages 1-22, June.
  4. Sougata Poddar, 2005. "Why Software Piracy Rates Differ – A Theoretical Analysis," Departmental Working Papers wp0515, National University of Singapore, Department of Economics.
  5. Bae, Sang Hoo & Choi, Jay Pil, 2006. "A model of piracy," Information Economics and Policy, Elsevier, vol. 18(3), pages 303-320, September.
  6. Sylvain Dejean, 2009. "What can we learn from empirical studies about piracy ?," Post-Print hal-00963851, HAL.
  7. Banerjee, Dyuti S., 2006. "Lobbying and commercial software piracy," European Journal of Political Economy, Elsevier, vol. 22(1), pages 139-155, March.
  8. 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.
  9. 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.
  10. Arai, Yasuhiro, 2011. "Civil and criminal penalties for copyright infringement," Information Economics and Policy, Elsevier, vol. 23(3), pages 270-280.
  11. Jen-Te Yao, 2005. "Counterfeiting and an Optimal Monitoring Policy," European Journal of Law and Economics, Springer, vol. 19(1), pages 95-114, January.
  12. 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 159-74, April.
  13. Sonia Oreffice & Climent Quintana, 2009. "Anthropometry and Socioeconomics in the Couple: Evidence from the PSID," Working Papers 2009-22, FEDEA.
  14. Theo Papadopoulos, 2003. "Determinants of International Sound Recording Piracy," Economics Bulletin, AccessEcon, vol. 6(10), pages 1-9.
  15. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-31, June.
  16. Ming Chang & Chiu Lin & Dachrahn Wu, 2008. "Piracy and limited liability," Journal of Economics, Springer, vol. 95(1), pages 25-53, October.
  17. Wauthy, Xavier, 1996. "Quality Choice in Models of Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 345-53, September.
  18. MartI´nez-Sánchez, Francisco, 2010. "Avoiding commercial piracy," Information Economics and Policy, Elsevier, vol. 22(4), pages 398-408, December.
  19. repec:ebl:ecbull:v:6:y:2003:i:10:p:1-9 is not listed on IDEAS
  20. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  21. Sougata Poddar, 2005. "Network Externality and Commercial Software Piracy," Departmental Working Papers wp0516, National University of Singapore, Department of Economics.
  22. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter.
  23. 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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