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Piracy on the internet: Accommodate it or fight it? A dynamic approach

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Listed:
  • Herings P. Jean-Jacques
  • Peeters Ronald
  • Yang Michael S.

    (METEOR)

Abstract

This paper uses a dynamic stochastic model to solve for the optimal pricing policy of themusic recording companies in the presence of P2P file-sharing networks eroding their CDsales. We employ a policy iteration algorithm on a discretized state space to numericallycompute the optimal price policy. The realistically calibrated model reflects the real-worldfigures we observe and provides estimates of figures we can not observe, such as changesin total welfare. The results suggest that, thanks to the existence of P2P networks, totalwelfare in 2008 in the U.S. is about $25.6 billion more per annum than in 1999 before P2Pwas introduced. Moreover, the results predict that the current trend of decreasing CDsales will continue until around the year 2020 when it will stabilize at around 231.2 millioncopies per year, comparing to the industry all-time high of 938.9 million in 1999. Thecomparative static analysis shows that full enforcement of intellectual property rights,although helpful for the industrial profit, may have adverse effect on total welfare.

Suggested Citation

  • Herings P. Jean-Jacques & Peeters Ronald & Yang Michael S., 2009. "Piracy on the internet: Accommodate it or fight it? A dynamic approach," Research Memorandum 034, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  • Handle: RePEc:unm:umamet:2009034
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. File sharing is welfare enhancing
      by Economic Logician in Economic Logic on 2009-12-10 06:07:00
    2. Was Napster Right?: Filesharing is good for social welfare
      by Christian Zimmermann in Against Monopoly on 2009-12-10 19:34:03

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    Cited by:

    1. Waters, James, 2013. "Pricing information goods with piracy and heterogeneous consumers," MPRA Paper 46918, University Library of Munich, Germany.
    2. Waters, James, 2015. "Welfare implications of piracy with dynamic pricing and heterogeneous consumers," European Journal of Operational Research, Elsevier, vol. 240(3), pages 904-911.

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