Piracy of Digital Products: A Contest Theoretical Approach

Magnus Hoffmann and Frederik Schmidt

MPRA Paper from University Library of Munich, Germany

Abstract: In the following, we examine a market of a digital consumption good with monopolistic supply. In this market, it is the ability of the consumer to bypass (”crack”) the copy-protection of the monopolist which induces a lower price of the digital good, compared to an uncontested monopoly (textbook case). We analyze the complex relationship between the cracking efforts of the consumer, the copy-protection efforts and the pricing decision of the monopolist, and the welfare of the economy. We find, for example, that the monopolist will deter piracy if the (exogenous) relative effectiveness of the consumer’s bypassing activity is low compared to the copy-protection technology. In this case welfare is lower than the welfare in the textbook case. On the contrary, welfare rises above the textbook case level if the relative effectiveness of cracking is sufficiently high.

Keywords: Digital Products; Contests; Security of Property Rights; Endogenous Monopoly Price (search for similar items in EconPapers)
JEL-codes: D42 C72 D23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-cul, nep-ipr, nep-mic and nep-reg
Date: 2007-05
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http://mpra.ub.uni-muenchen.de/3289/ orginal version
http://mpra.ub.uni-muenchen.de/5944/ revised version
http://mpra.ub.uni-muenchen.de/6180/ revised version

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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:3289

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