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Network externalities and the myth of profitable piracy

Author: Stephen P King; Ryan Lampe; Intellectual Property Research Institute of Australia.
Publisher: Melbourne, Vic. : Intellectual Property Research Institute of Australia, 2002.
Series: Intellectual Property Research Institute of Australia working paper, no. 03/02.
Edition/Format:   Print book : English
Database:WorldCat
Summary:
Recent papers have argued that a firm might be able to raise its profit by allowing some customers to steal its product. In particular, with network externalities, so that customers value the product more highly the more widely the product is used, it is claimed that piracy can be profitable. In this paper, the authors analyse these claims when the producer can freely choose the degree of piracy prevention. They
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Details

Material Type: Internet resource
Document Type: Book, Internet Resource
All Authors / Contributors: Stephen P King; Ryan Lampe; Intellectual Property Research Institute of Australia.
OCLC Number: 223392681
Description: 26 p. : tables, formulae ; 21 cm.
Contents: 1. Introduction --
2. A model of piracy and give-aways --
3. Piracy and give-aways with a single customer group --
4. Price discrimination between customer groups --
5. No price discrimination --
6. Conclusion.
Series Title: Intellectual Property Research Institute of Australia working paper, no. 03/02.
Responsibility: Stephen P. King and Ryan Lampe.

Abstract:

Recent papers have argued that a firm might be able to raise its profit by allowing some customers to steal its product. In particular, with network externalities, so that customers value the product more highly the more widely the product is used, it is claimed that piracy can be profitable. In this paper, the authors analyse these claims when the producer can freely choose the degree of piracy prevention. They show that piracy can never be profitable if the producer can directly price discriminate between potential pirates and other customers. In the absence of price discrimination, piracy will only raise profits when the ability to pirate is inversely related to customer willingness-to-pay.

Even in this situation, there is no profit maximising equilibrium where some potential pirates buy while others pirate the product. Thus, even though potential pirates differ in their ability to illegally gain the product, the profit maximising outcome involves either no piracy or complete piracy.

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