Takeyama (1994)

Source Details

Takeyama (1994)
Title:	The welfare implications of unauthorized reproduction of intellectual property in the presence of demand network externalities
Author(s):	Takeyama, L. N.
Year:	1994
Citation:	Takeyama, L. N. (1994). The welfare implications of unauthorized reproduction of intellectual property in the presence of demand network externalities. The journal of industrial economics, 155-166.
Link(s):	Definitive
Key Related Studies:	Novos and Waldman (1994) Conner and Rumelt (1991) Besen (1986) Liebowitz (1985) Katz and Shapiro (1985)
Discipline:	K: Law and Economics K42: Illegal Behavior and the Enforcement of Law O34: Intellectual Property and Intellectual Capital
Linked by:	Arai and Kinukawa (2014), Banerjee, Banerjee and Raychaudhuri (2008), Hui and Png (2003), Oestreicher-Singer and Sundararajan (2010), Peitz and Waelbroeck (2006a), Peitz and Waelbroeck (2006b), Smith and Telang (2012), Tanaka (2004), Yoon (2002), Zamoon and Curley (2008)

About the Data
Data Description:	The author proposes an economic model that shows that, once the network-enhancing effect of the copies is taken into account, not only can copying lead to greater firm profits, it can produce a Pareto improvement in social welfare, despite the absence of indirect appropriation
Data Type:	Primary and Secondary data
Secondary Data Sources:
Data Collection Methods:	Qualitative Collection Methods
Data Analysis Methods:	Qualitative Analysis Methods
Industry(ies):
Country(ies):	United States
Cross Country Study?:	No
Comparative Study?:	No
Literature review?:	No
Government or policy study?:	No
Time Period(s) of Collection:	Not stated
Funder(s):

Abstract

This paper finds that unauthorized reproduction of intellectual property in the presence of demand network externalities can not only induce greater firm profits relative to the case where there is no copying, it can lead to a Pareto improvement in social welfare. Ceteris paribus, when network externalities are present, firms have a greater incentive to expand output because marginal revenue is higher and/or they may wish to create preemptive installed bases. This paper suggests that unauthorized copying can be a relatively efficient means of achieving this by allowing the firm, in effect, to 'price discriminate' among different classes of consumers.

Main Results of the Study

• There is a general consensus that firm profits necessarily decline with copying whenever the firm is unable indirectly to appropriate downstream revenue from reproductions. This paper demonstrates that, even without indirect appropriation, when demand network externalities are considered, not only can copying lead to greater firm profits, it can produce a Pareto improvement in social welfare* Unauthorized copying can be a relatively efficient means of increasing network size* Unauthorized copying allow the firm to price discriminate among different classes of consumers. That is, some units (the copies) are "sold" at one price (zero) while other units are sold at a higher price. Ceteris paribus, when network externalities are present, the firm has a greater incentive to expand output because marginal revenue is higher, and in some cases the firm may wish to create a preemptive installed base* Inframarginal consumers purchase originals at a price that may largely appropriate the externality of increased network size created by copier* Without copying, the same network size may only be obtained at a possibly lower price (and certainly positive marginal cost) on all existing units.* Profits may be greater with copying even if all deterred pirates subsequently purchase* The presence of copying with network effects can also be a relatively efficient means of achieving long-run strategic outcomes

Policy Implications as Stated By Author

• Standard measures of the harm to producers and society from unauthorized reproduction of intellectual property may be overstated* Network effects and indirect appropriation are not competing hypotheses and that both effects should be considered in any empirical application

Coverage of Study

Coverage of Fundamental Issues

Issue	Included within Study
Relationship between protection (subject matter/term/scope) and supply/economic development/growth/welfare
Relationship between creative process and protection - what motivates creators (e.g. attribution; control; remuneration; time allocation)?
Harmony of interest assumption between authors and publishers (creators and producers/investors)
Effects of protection on industry structure (e.g. oligopolies; competition; economics of superstars; business models; technology adoption)
Understanding consumption/use (e.g. determinants of unlawful behaviour; user-generated content; social media)

Coverage of Evidence Based Policies

Issue	Included within Study
Nature and Scope of exclusive rights (hyperlinking/browsing; reproduction right)
Exceptions (distinguish innovation and public policy purposes; open-ended/closed list; commercial/non-commercial distinction)
Mass digitisation/orphan works (non-use; extended collective licensing)
Licensing and Business models (collecting societies; meta data; exchanges/hubs; windowing; crossborder availability)
Fair remuneration (levies; copyright contracts)
Enforcement (quantifying infringement; criminal sanctions; intermediary liability; graduated response; litigation and court data; commercial/non-commercial distinction; education and awareness)

Datasets

Sample size:	1
Level of aggregation:	Economic model
Period of material under study:	Not stated