Versioning of information goods under the threat of piracy |
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Authors: | Won-Young Cho Byong-Hun Ahn |
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Institution: | a Samsung Economic Research Institute, 1321-15, Seocho 2-Dong, Seocho-gu, Seoul 137-955, South Korea;b Korea Advanced Institute of Science and Technology, 207-43 Cheongryangri-Dong, Dongdaemun-Gu, Seoul 130-012, South Korea |
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Abstract: | The present study investigates the effects of piracy on the quality decisions of a firm that produces two versions of an information good: that is, one version for a consumer with a high willingness to pay and a second version for a consumer with a low willingness to pay. On the assumption that there is no quality difference between the original and the illegal copy and that the cost of the copy is constant across users, we show that the presence of piracy induces the firm to choose a lower level of quality of the former and a higher level of quality of the latter relative to decisions made in the absence of piracy. We also discuss policy implications concerning the socially optimal level of copyright protection. |
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Keywords: | Copyright protection Piracy Versioning Vertical differentiation Information goods |
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