IDEAS home Printed from https://ideas.repec.org/p/cbt/econwp/06-01.html
   My bibliography  Save this paper

Piracy Accommodation and the Optimal Timing of Royalty Payments

Author

Abstract

This paper generalizes the two-period model of Watt (2000) who demonstrates the possibility of optimal accommodation of a pirate when the royalty rate applying to a creation is uniform and second-period Cournot competition applies. Admitting nonlinear contracts with period-specific royalty rates that leave total payments unchanged, simulation analysis shows that a producer of originals does better to increase the royalty rate in period 1 and decrease the rate to a negative level in period 2, thereby more than offsetting the usual cost advantage available to a pirate. Watt's illustrative examples regarding piracy accommodation (but not piracy exclusion) are overturned when a nonlinear contract is chosen optimally, although accommodation remains optimal in some other cases. Further, where exclusion is impossible under uniform royalties, cases exist where exclusion is feasible under nonlinear royalties. Even so, accommodation may be a preferable strategy.

Suggested Citation

  • Alan E. Woodfield, 2006. "Piracy Accommodation and the Optimal Timing of Royalty Payments," Working Papers in Economics 06/01, University of Canterbury, Department of Economics and Finance.
    • Handle: RePEc:cbt:econwp:06/01
    as

    Download full text from publisher

    File URL: https://repec.canterbury.ac.nz/cbt/econwp/0601.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Takeyama, Lisa N, 1997. "The Intertemporal Consequences of Unauthorized Reproduction of Intellectual Property," Journal of Law and Economics, University of Chicago Press, vol. 40(2), pages 511-522, October.
    2. Michele Boldrin & David Levine, 2002. "The Case Against Intellectual Property," American Economic Review, American Economic Association, vol. 92(2), pages 209-212, May.
    3. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
    4. Liebowitz, S J, 1985. "Copying and Indirect Appropriability: Photocopying of Journals," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 945-957, October.
    5. Boldrin,Michele & Levine,David K., 2010. "Against Intellectual Monopoly," Cambridge Books, Cambridge University Press, number 9780521127264, September.
    6. Benjamin Klein & Andres V. Lerner & Kevin M. Murphy, 2002. "The Economics of Copyright "Fair Use" in a Networked World," American Economic Review, American Economic Association, vol. 92(2), pages 205-208, May.
    7. Johnson, William R, 1985. "The Economics of Copying," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 158-174, February.
    8. Stan Liebowitz, 2005. "Economists’ Topsy-Turvy View of Piracy," Law and Economics 0505002, University Library of Munich, Germany.
    9. Novos, Ian E & Waldman, Michael, 1984. "The Effects of Increased Copyright Protection: An Analytic Approach," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 236-246, April.
    10. Besen, Stanley M & Kirby, Sheila Nataraj, 1989. "Private Copying, Appropriability, and Optimal Copying Royalties," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages 255-280, October.
    11. Bakos, Yannis & Brynjolfsson, Erik & Lichtman, Douglas, 1999. "Shared Information Goods," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 117-155, April.
    12. Richard Watt, 2000. "Copyright and Economic Theory," Books, Edward Elgar Publishing, number 2023.
    13. Fernando Nascimento & Wilfried R. Vanhonacker, 1988. "Optimal Strategic Pricing of Reproducible Consumer Products," Management Science, INFORMS, vol. 34(8), pages 921-937, August.
    14. Wendy J. Gordon & Richard Watt (ed.), 2003. "The Economics of Copyright," Books, Edward Elgar Publishing, number 2998.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Richard Watt, 2013. "Copyright law and royalty contracts," Chapters, in: Ruth Towse & Christian Handke (ed.), Handbook on the Digital Creative Economy, chapter 18, pages 197-208, Edward Elgar Publishing.
    2. Richard Watt, 2014. "The basic economic theory of copyright," Chapters, in: Richard Watt (ed.), Handbook on the Economics of Copyright, chapter 1, pages 9-25, Edward Elgar Publishing.
    3. Richard Watt, 2014. "Copying and the pricing of information goods," Chapters, in: Richard Watt (ed.), Handbook on the Economics of Copyright, chapter 12, pages 207-224, Edward Elgar Publishing.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stan J. Liebowitz & Richard Watt, 2006. "How To Best Ensure Remuneration For Creators In The Market For Music? Copyright And Its Alternatives," Journal of Economic Surveys, Wiley Blackwell, vol. 20(4), pages 513-545, September.
    2. Patrick Legros, 2005. "Art and the Internet: Blessing the Curse?," Levine's Bibliography 666156000000000502, UCLA Department of Economics.
    3. Kim Jin-Hyuk, 2007. "Strategic Use of Copyright Protection to Deter Entry," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-19, September.
    4. 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.
    5. Yoon, Kiho, 2002. "The optimal level of copyright protection," Information Economics and Policy, Elsevier, vol. 14(3), pages 327-348, September.
    6. Tunay I. Tunca & Qiong Wu, 2013. "Fighting Fire with Fire: Commercial Piracy and the Role of File Sharing on Copyright Protection Policy for Digital Goods," Information Systems Research, INFORMS, vol. 24(2), pages 436-453, June.
    7. Terrence August & Tunay I. Tunca, 2008. "Let the Pirates Patch? An Economic Analysis of Software Security Patch Restrictions," Information Systems Research, INFORMS, vol. 19(1), pages 48-70, March.
    8. Felix Oberholzer-Gee & Koleman Strumpf, 2010. "File Sharing and Copyright," NBER Chapters, in: Innovation Policy and the Economy, Volume 10, pages 19-55, National Bureau of Economic Research, Inc.
    9. Holm, Håkan, 2000. "The Computer Generation's Willingness to Pay for Originals when Pirates are Present – A CV study," Working Papers 2000:9, Lund University, Department of Economics, revised 16 Mar 2001.
    10. Martin Peitz & Patrick Waelbroeck, 2005. "An Economist's Guide to Digital Music," CESifo Economic Studies, CESifo Group, vol. 51(2-3), pages 359-428.
    11. Jin-Hyuk Kim, 2013. "A simple model of copyright levies: implications for harmonization," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(6), pages 992-1013, December.
    12. Ming-Fang Tsai & Jiunn-Rong Chiou, 2012. "Counterfeiting, enforcement and social welfare," Journal of Economics, Springer, vol. 107(1), pages 1-21, September.
    13. Yeh-ning Chen & Ivan Png, 2003. "Information Goods Pricing and Copyright Enforcement: Welfare Analysis," Information Systems Research, INFORMS, vol. 14(1), pages 107-123, March.
    14. Gürtler, Oliver, 2006. "Software Piracy in the Video Game Market," Bonn Econ Discussion Papers 20/2006, University of Bonn, Bonn Graduate School of Economics (BGSE).
    15. Rick Harbaugh & Rahul Khemka, 2010. "Does Copyright Enforcement Encourage Piracy?," Journal of Industrial Economics, Wiley Blackwell, vol. 58(2), pages 306-323, June.
    16. David Waterman & Sung Ji & Laura Rochet, 2007. "Enforcement and Control of Piracy, Copying, and Sharing in the Movie Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 30(4), pages 255-289, June.
    17. 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.
    18. Paul Belleflamme & Pierre M. Picard, 2007. "Piracy and Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(2), pages 351-383, June.
    19. Michele Boldrin & David K Levine, 2005. "Intellectual Property and the Efficient Allocation of Surplus from Creation," Levine's Working Paper Archive 618897000000000925, David K. Levine.
    20. Shin-yi Wu & Pei-yu Chen, 2008. "Versioning and Piracy Control for Digital Information Goods," Operations Research, INFORMS, vol. 56(1), pages 157-172, February.

    More about this item

    Keywords

    accommodating copyright piracy; nonlinear royalty contracts;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    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:cbt:econwp:06/01. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Albert Yee (email available below). General contact details of provider: https://edirc.repec.org/data/decannz.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.