| dc.description.abstract | In this paper, we examine the impacts of casual copying in the market for goods
that have strong network externalities and/or are strong complements with goods
in another market. By allowing casual copying to occur, the monopolist triggers
two effects. The “copying effect’’ reduces demand (and thus profits) due
the introduction of a better outside alternative to consumers. However, a “network
augmenting’’ effect works to increase demand through the larger size of a
network that allows copying. We find that if the marginal network externality is
large enough, the monopolist will find it profitable to allow some level of casual
copying to occur among non-purchasers of the good. And in a simplified dynamic
setting, we find that as time passes and the good’s network becomes
more mature, the monopolist will seek higher and higher levels of copy protection.
This implies that firms in newly formed markets should be more willing to
allow copying to occur than those in established markets. | |
