Piracy and limited liability |
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Authors: | Ming Chung Chang Chiu Fen Lin Dachrahn Wu |
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Institution: | (1) The Graduate Institute of Industrial Economics, National Central University, No. 300, Chung-Da Rd., Chung-Li City, 32001, Taiwan;(2) Department of Economics, National Central University, Chung-Li City, Taiwan |
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Abstract: | This paper analyzes the effects of end-user piracy on a monopolized software industry with network effects in which consumers
have heterogeneous income and limited liability. Limited liability produces a piracy cost which increases with income. The
monopolist thus may be able to exploit the network effect brought about by the piracy of low-income consumers to charge a
higher price to high-income consumers thereby earn a higher profit, especially when the monopolist can prevent the network
effect from spilling over to the high-income consumers. If intellectual property rights policies are severe enough, then the
monopolist can avoid the spillover. Otherwise it may become a case where each high-income buyer benefits from the piracy but
the monopolist is hurt. However, a severe policy may bring about a high piracy rate since it invites the monopolist to raise
the price.
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Keywords: | Piracy Limited liability Income distribution |
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