Commercial piracy and intellectual property policy

I discuss the competition between a copyright owner and several commercial pirates who sell copies of the same information good to consumers. I view the increased risk of a punishment that offering a pirate copy to a consumer causes as an advertising cost whose value is chosen by the government. The structure of the market for pirate copies is affected also by fixed costs that are caused by punishments or DRM systems. I present a systematic analysis of the effects of these policy variables and the quality of pirate copies on the market for the considered information good.