Piracy Prevention and the Pricing of Information Goods

21 Pages Posted: 26 Jun 2006

See all articles by Helmuth Cremer

Helmuth Cremer

University of Toulouse (GREMAQ & IDEI); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Pierre Pestieau

University of Liège - Research Center on Public and Population Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Date Written: March 2006

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.

Keywords: Piracy, copying, intellectual property, information good

JEL Classification: D82, L11, L86

Suggested Citation

Cremer, Helmuth and Pestieau, Pierre, Piracy Prevention and the Pricing of Information Goods (March 2006). CEPR Discussion Paper No. 5556, Available at SSRN: https://ssrn.com/abstract=912253

Helmuth Cremer (Contact Author)

University of Toulouse (GREMAQ & IDEI) ( email )

Toulouse, 31000
France
+33 1 6112 8606 (Phone)
+33 1 6112 8637 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Pierre Pestieau

University of Liège - Research Center on Public and Population Economics ( email )

Boulevard du Rectorat, 7, Batiment 31
Sart-Tilman
B-4000 Liege, 4000
Belgium
+32 4 366 3108 (Phone)
+32 4 366 3106 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Vopie Roman Pays
Louvain la Neuve
Belgium

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
22
Abstract Views
789
PlumX Metrics