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Publisher's Announcements and Piracy-Monitoring Devices in Software Adoption

Eric Darmon, Alexandra Rufini and Dominique Torre
Annals of Economics and Statistics
No. 115/116, SPECIAL ISSUE ON KNOWLEDGE CAPITAL IN NANOTECHNOLOGY AND OTHER HIGH TECHNOLOGY INDUSTRIES (December 2014), pp. 409-430
Published by: GENES on behalf of ADRES
DOI: 10.15609/annaeconstat2009.115-116.409
Stable URL: http://www.jstor.org/stable/10.15609/annaeconstat2009.115-116.409
Page Count: 22
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Publisher's Announcements and Piracy-Monitoring Devices in Software Adoption
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Abstract

In this paper, we investigate the distribution strategy of a software publisher. The user adoption context is characterized by uncertainty about quality (experience good) and by heterogeneous piracy costs. Users can purchase or get unauthorized/illegal copies (digital piracy) of the software during two periods (or not adopt at all). Between these two periods, users can acquire information through word-of-mouth. To maximize profit, the publisher needs to decide about the price, quality and level of monitoring of piracy. We show that the software publisher can profit from accommodation of a certain level of piracy of the product. We add to the literature by explicitly considering the opportunity for the publisher to cheat about future price and monitoring levels (misleading announcements). Such a strategy that is falsely permissive towards piracy, can sometimes appear more profitable. However, when the degree of sophistication of user expectations about the publisher's strategy increases, only a strategy that is permissive (with respect to piracy) with non-misleading announcements remains robust. JEL: D43, D83, K42, L15 / KEY WORDS: Software Distribution Strategy, Piracy, Experience Good, Misleading Announcements

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