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Piracy Prevention and the Pricing of Information Goods

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  • Pestieau, Pierre
  • Cremer, Helmuth

Abstract

This paper develops a simple model of piracy to analyze its effects on prices and welfare and to study the optimal enforcement policy. A monopolist produces an information good (involving a 'large' development cost and a 'small' reproduction cost) that is sold to two groups of consumers differing in their valuation of the good. We distinguish two settings: one in which the monopoly is regulated and one in which it maximizes profits and is not regulated, except that the public authority may be responsible for the control of piracy. We show that copying or piracy might be welfare enhancing because it is a way to 'provide' the good to some individuals (those with a low willingness to pay) without undermining the firm?s ability to finance the development cost via the pricing scheme applied to high valuation consumers. The level of piracy control differs according to the regulatory environment. Three levels of piracy control emerge. The highest is the one chosen by the private monopoly. The next level is the one chosen by the regulated monopoly. The lowest, that can be zero, is the level of control chosen by the public authority when the good is sold (and priced) by a private monopoly.

Suggested Citation

  • Pestieau, Pierre & Cremer, Helmuth, 2006. "Piracy Prevention and the Pricing of Information Goods," CEPR Discussion Papers 5556, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:5556
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    Full references (including those not matched with items on IDEAS)

    Citations

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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. Bae Sang Hoo & Yoo Kyeongwon, 2021. "Is Imitation Bad for the Production of Creative Works?," Review of Network Economics, De Gruyter, vol. 19(2), pages 115-144, January.
    3. Žigić, Krešimir & Střelický, Jiří & Kúnin, Michael, 2023. "Copyright and firms’ own IPR protection in a software market: Monopoly versus duopoly," Economic Modelling, Elsevier, vol. 123(C).
    4. Regner, Tobias & Riener, Gerhard, 2012. "Voluntary payments, privacy and social pressure on the internet: A natural field experiment," DICE Discussion Papers 82, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    5. Tobias Regner & Gerhard Riener, 2017. "Privacy Is Precious: On the Attempt to Lift Anonymity on the Internet to Increase Revenue," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(2), pages 318-336, June.
    6. Choi, Pilsik & Bae, Sang Hoo & Jun, Jongbyung, 2010. "Digital piracy and firms' strategic interactions: The effects of public copy protection and DRM similarity," Information Economics and Policy, Elsevier, vol. 22(4), pages 354-364, December.
    7. Kogan, Konstantin & Ozinci, Yaacov & Perlman, Yael, 2013. "Containing piracy with product pricing, updating and protection investments," International Journal of Production Economics, Elsevier, vol. 144(2), pages 468-478.
    8. Éric Darmon & Thomas Le Texier, 2014. "Private or Public Law Enforcement? The Case of Digital Piracy Policies with Non-monitored Illegal Behaviors," Economics Working Paper Archive (University of Rennes & University of Caen) 201403, Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS.
    9. Cho, Won-Young & Ahn, Byong-Hun, 2010. "Versioning of information goods under the threat of piracy," Information Economics and Policy, Elsevier, vol. 22(4), pages 332-340, December.
    10. Robert Gmeiner, 2019. "Innovation, Theft, and Market Structure," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 47(3), pages 243-260, September.
    11. Paulomi Basu & Tanmoyee Banerjee, 2018. "A Theoretical Analysis Of Product Versioning In The Context Of Commercial Piracy," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 63(219), pages 115-136, October –.
    12. T. Randolph Beard & George S. Ford & Gilad Sorek & Lawrence J. Spiwak, 2018. "Piracy, Imitation, and Optimal Copyright Policy," Southern Economic Journal, John Wiley & Sons, vol. 84(3), pages 815-830, January.
    13. Yuanzhu Lu & Sougata Poddar, 2019. "Limiting End-user Piracy - The Role of Private and Public Anti-Piracy Measure," Annals of Economics and Finance, Society for AEF, vol. 20(1), pages 181-197, May.
    14. Tsai, Ming-Fang & Chiou, Jiunn-Rong & Lin, Chun-Hung A., 2012. "A model of counterfeiting: A duopoly approach," Japan and the World Economy, Elsevier, vol. 24(4), pages 283-291.
    15. Chang, Yang-Ming & Walter, Jason, 2015. "Digital piracy: Price-quality competition between legal firms and P2P network hosts," Information Economics and Policy, Elsevier, vol. 31(C), pages 22-32.
    16. Basu, Paulomi & Banerjee , Tanmoyee & Mitra, Santanu, 2022. "An Experimental Understanding of Transaction Utility in Piracy," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 47(4), pages 123-141, December.

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    More about this item

    Keywords

    Piracy; Copying; Intellectual property; Information good;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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