Piracy Accommodation and the Optimal Timing of Royalty Payments

Alan Woodfield ()

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

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.

Keywords: accommodating copyright piracy; nonlinear royalty contracts (search for similar items in EconPapers)
JEL-codes: D43 K11 L13 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2006-02-01
New Economics Papers: this item is included in nep-com, nep-cul, nep-law, nep-mkt and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:06/01

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