An Analysis of Copyright Protection Strategy With Customers Category and Network Externality

Abstract

Illegal reproduction is increasingly becoming a major concern of companies and the society. Previous research has shown when network effect is strong, piracy could be beneficial for firms. However, some researchers got that strong network effects can sometimes lead to a firm choosing higher levels of copyright protection. How to choose the investment strategy for firms in this society with prevalent piracy? There are two strategies: no copyright protection and setting copyright protection. We address two questions in a monopoly and duopoly setting. Frist, what effects the attractiveness of each of the two strategies? Second, under which conditions will any particular strategy dominate another? We show that in a monopoly setting, firms prefer not to take a copyright protection with higher level of network effect and more support-piracy consumers. In a duopoly setting, the equilibrium of game theory is at the choice of the strategy of copyright protection.