Pricing information goods with piracy and heterogeneous consumers

James Waters

MPRA Paper from University Library of Munich, Germany

Abstract: We present an information good pricing model with persistently heterogeneous consumers and a rising marginal propensity for them to pirate. Three offsetting pricing mechanisms occur: skimming, compressing price changes, and delaying product launch. We identify a novel trade off in piracy's effect on welfare. We find that piracy quickens sales times and raises welfare in fixed capacity markets, and does the opposite in growing markets. In our model, consumers benefit from piracy except at very high rates in rapidly expanding markets, legal sellers always dislike it, and pirate providers like high but not very high rates. Purchase delay, transient heterogeneity, inelastic demand, and network externalities reduce piracy's effect, but demand uncertainty doesn't.

Keywords: Information goods; software; piracy; skimming; intertemporal price discrimination; prices; pricing; welfare (search for similar items in EconPapers)
JEL-codes: D60 L11 L86 (search for similar items in EconPapers)
Date: 2013-05-12
New Economics Papers: this item is included in nep-com, nep-ipr, nep-pr~, nep-iue and nep-mkt
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:46918

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