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Settling Lawsuits With Pirates

Author

Listed:
  • Xinyu Hua
  • Kathryn E. Spier

Abstract

A firm licenses a product to overlapping generations of heterogeneous consumers. Consumers may purchase the product, pirate/steal it, or forego it. Higher consumer types enjoy higher gross benefits and are caught stealing at a higher rate. The firm may commit to an out‐of‐court settlement policy that is “soft” on pirates, so high types purchase the product and low types steal it until caught. Settlement contracts, which include both cash payments and licenses for future product use, facilitate price discrimination. Settlement may either create social value by expanding the market or destroy value by limiting market access and possibly deterring more efficient entrants.

Suggested Citation

  • Xinyu Hua & Kathryn E. Spier, 2023. "Settling Lawsuits With Pirates," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(2), pages 543-575, May.
    • Handle: RePEc:wly:iecrev:v:64:y:2023:i:2:p:543-575
    DOI: 10.1111/iere.12608
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