Chen and Png (2003)
|Chen and Png (2003)|
|Title:||Information Goods Pricing and Copyright Enforcement: Welfare Analysis|
|Author(s):||Chen, Y-N., Png, I. P.|
|Citation:||Chen, Yeh-ning, and Ivan Png. Information goods pricing and copyright enforcement: Welfare analysis. Information Systems Research 14.1 (2003): 107-123.|
|Key Related Studies:|
|Linked by:||Ghose, Smith and Telang (2006), Harbaugh and Khemka (2010), Oestreicher-Singer and Sundararajan (2010)|
|About the Data|
|Data Description:||Literature review|
|Data Type:||Secondary data|
|Secondary Data Sources:|
|Data Collection Methods:|
|Data Analysis Methods:|
|Cross Country Study?:||No|
|Government or policy study?:||No|
|Time Period(s) of Collection:||
We consider how the government should set the fine for copying, tax on copying medium, and subsidy on legitimate purchases, whereas a monopoly publisher sets price and spending on detection. There are two segments of potential software users—ethical users who will not copy, and unethical users who would copy if the benefit outweighs the cost. In de ciding on policy, the government must consider how the publisher adjusts price and detection to changes in the fine, tax, and subsidy. Our key welfare result is that increases in detection affect welfare more negatively than price cuts. We also show that the tax is welfare superior to the fine, and that a subsidy is optimal. Generally, government policies that focus on penalties alone will miss the social welfare optimum.
Main Results of the Study
We derived three welfare results. Our key result is that, whereas the producer of an information good may view pricing and enforcement as substitutes in its strategy, the two variables have quite different welfare implications. By reducing the expected benefit among those who copy, an increase in detection imposes greater social losses than a price cut. Accordingly, society prefers that information goods producers man age piracy through price cuts rather than enforcement.Our second result is that, if copying occurs, then a tax on the copying medium is welfare superior to a fine on individuals who are detected to have made copies. The tax has less effect on the legitimate price and encourages the publisher to reduce spending on detection. Our final result is that it is optimal to sub sidize legitimate purchases. Besides stimulating usage, the subsidy leads the publisher to reduce spending on detection. Generally, then, our analysis suggests that policies focusing on penalties alone while ignoring taxes and subsidies would miss the social welfare optimum.
Policy Implications as Stated By Author
- Increases in detection affect welfare more negatively than price cuts* A tax is welfare superior to a fine, and a subsidy is optimal* Government policies that focus on penalties alone will miss the social welfare optimum.
Coverage of Study
|Level of aggregation:||Individual data|
|Period of material under study:||1984 to 1999|