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Why Software Piracy Rates Differ – A Theoretical Analysis

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  • Sougata Poddar

    () (Department of Economics, National University of Singapore)

Abstract

The pervasiveness of the illegal copying of software is a worldwide phenomenon. However, the level of piracy across various markets as well as across various countries varies a great deal. In this paper, we develop a theoretical model to explain this feature. In this model, the software firm undertakes costly deterrence activity in the form of R&D to stop piracy. In our model existence (or non-existence) of piracy comes out endogenously. We show that piracy survives in the market when the income gap is high among the potential software users, enforcement policy against the pirate(s) is less strict (i.e. cost of piracy is not too high), and when the pirate(s) produces a software copy that is moderately reliable.

Suggested Citation

  • Sougata Poddar, 2005. "Why Software Piracy Rates Differ – A Theoretical Analysis," Departmental Working Papers wp0515, National University of Singapore, Department of Economics.
  • Handle: RePEc:nus:nusewp:wp0515
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    File URL: http://www.fas.nus.edu.sg/ecs/pub/wp/wp0515.pdf
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    Cited by:

    1. Nicolas Dias Gomes & Pedro André Cerqueira & Luís Alçada Almeida, 2014. "Software Piracy: A Critical Survey of the Theoretical and Empirical Literature," GEMF Working Papers 2014-05, GEMF, Faculty of Economics, University of Coimbra.
    2. Insaf Bekir & Sana El Harbi & Gilles Grolleau, 2012. "The strategy of raising counterfeiters’ costs in luxury markets," European Journal of Law and Economics, Springer, vol. 33(3), pages 645-661, June.
    3. Banerjee, Tanmoyee & Biswas, Nilanjana, 2016. "IPR protection and optimal entry modes of multinationals," Economics Discussion Papers 2016-5, Kiel Institute for the World Economy (IfW).
    4. Javier López-Cuñat & Francisco Martínez-Sánchez, 2015. "Anti-piracy policy and quality differential in markets for information goods," European Journal of Law and Economics, Springer, vol. 39(2), pages 375-401, April.
    5. Gomes, Nicolas Dias & Cerqueira, Pedro André & Almeida, Luís Alçada, 2015. "A survey on software piracy empirical literature: Stylized facts and theory," Information Economics and Policy, Elsevier, vol. 32(C), pages 29-37.

    More about this item

    Keywords

    Software piracy; Copyright Violations; R&D; Raising rival’s Cost; Deterrence; Product reliability; Income gap;

    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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