IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/3289.html
   My bibliography  Save this paper

Piracy of Digital Products: A Contest Theoretical Approach

Author

Listed:
  • Hoffmann, Magnus
  • Schmidt, Frederik

Abstract

In the following, we examine a market of a digital consumption good with monopolistic supply. In this market, it is the ability of the consumer to bypass (”crack”) the copy-protection of the monopolist which induces a lower price of the digital good, compared to an uncontested monopoly (textbook case). We analyze the complex relationship between the cracking efforts of the consumer, the copy-protection efforts and the pricing decision of the monopolist, and the welfare of the economy. We find, for example, that the monopolist will deter piracy if the (exogenous) relative effectiveness of the consumer’s bypassing activity is low compared to the copy-protection technology. In this case welfare is lower than the welfare in the textbook case. On the contrary, welfare rises above the textbook case level if the relative effectiveness of cracking is sufficiently high.

Suggested Citation

  • Hoffmann, Magnus & Schmidt, Frederik, 2007. "Piracy of Digital Products: A Contest Theoretical Approach," MPRA Paper 3289, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:3289
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/3289/1/MPRA_paper_3289.pdf
    File Function: original version
    Download Restriction: no

    File URL: https://mpra.ub.uni-muenchen.de/5944/3/MPRA_paper_5944.pdf
    File Function: revised version
    Download Restriction: no

    File URL: https://mpra.ub.uni-muenchen.de/6180/3/MPRA_paper_6180.pdf
    File Function: revised version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Gil S. Epstein & Shmuel Nitzan, 2003. "Political culture and monopoly price determination," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 21(1), pages 1-19, August.
    2. Epstein, Gil S. & Nitzan, Shmuel, 2003. "The social cost of rent seeking when consumer opposition influences monopoly behavior," European Journal of Political Economy, Elsevier, vol. 19(1), pages 61-69, March.
    3. Herschel I. Grossman, 2001. "The Creation of Effective Property Rights," American Economic Review, American Economic Association, vol. 91(2), pages 347-352, May.
    4. Grossman, Herschel I & Kim, Minseong, 1995. "Swords or Plowshares? A Theory of the Security of Claims to Property," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1275-1288, December.
    5. Paul Belleflamme, 2002. "Pricing Information Goods in the Presence of Copying," Working Papers 463, Queen Mary University of London, School of Economics and Finance.
    6. Epstein, Gil S. & Nitzan, Shmuel, 2004. "Strategic restraint in contests," European Economic Review, Elsevier, vol. 48(1), pages 201-210, February.
    7. Richard Allard, 1988. "Rent-seeking with non-identical players," Public Choice, Springer, vol. 57(1), pages 3-14, April.
    8. Franco Modigliani, 1958. "New Developments on the Oligopoly Front," Journal of Political Economy, University of Chicago Press, vol. 66, pages 215-215.
    9. Dixit, Avinash, 1982. "Recent Developments in Oligopoly Theory," American Economic Review, American Economic Association, vol. 72(2), pages 12-17, May.
    10. Leidy, Michael P, 1994. "Rent Dissipation through Self-Regulation: The Social Cost of Monopoly under Threat of Reform," Public Choice, Springer, vol. 80(1-2), pages 105-128, July.
    11. Martin Peitz & Patrick Waelbroeck, 2003. "Piracy of Digital Products: A Critical Review of the Economics Literature," CESifo Working Paper Series 1071, CESifo Group Munich.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Digital Products; Contests; Security of Property Rights; Endogenous Monopoly Price;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:3289. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.