Software Piracy in the Presence of Open Source Alternatives

We develop a model to investigate the manner in which the pricing, profitability, and protection strategies of a seller of a proprietary digital good respond to changing market conditions. Specifically, we investigate how product piracy and the presence of open source software alternatives (such as Open Office) impact the optimal strategy of a seller of proprietary software (such as Microsoft Office). In contrast to previous literature, we show that firms may make more (rather than less) effort to control piracy when network externalities are strong. In addition, we show that the level of network externalities amplifies losses incurred by an incumbent due to high-quality pirated goods. Therefore, for products characterized by high network externalities (such as software), sellers need to try to maintain a large perceived quality gap between their product and illegal copies. Further, we demonstrate that the appearance of an OSS alternative leads the incumbent to reduce both price and the level of piracy control. Although high-quality pirated goods are detrimental to profits in the absence of OSS, they may actually limit the incumbent’s losses and the need to adjust price and protection strategies due to the introduction of an OSS alternative. Thus, an incumbent may find it easier to compete with OSS in the presence of product piracy. Finally, highly correlated intrinsic valuation between an incumbent and OSS products require smaller adjustments to price and piracy controls and leads to muted impact on incumbent profit

Un nuevo caso de limitación y excepción a los derechos de autor para el software académico

In July of 2018, the Congress of the Republic of Colombia sanctioned the 1915 Law which was mainly geared towards implementing a “series of commercial commitments acquired within the framework of the agreements signed with the United States of America and the European Union.” What calls the attention of this paper is that article 16 of the Law includes several limitations and exceptions that refer to the use and reproduction of works, without taking into account types of intellectual works that exceed the traditional typologies of the concept of “intellectual work.” Also, the cited article 16 refers solely to the possibility of freely reproducing the intellectual work through reprographic means and reproducing it in a digital environment. Based on the latter, this paper has made an effort to answer the following question: To what extent is it possible to apply the current regulation of limitations and exceptions with educational purposes to computational programs in Colombia? This review of the topic has been done using an eminently documental qualitative methodology, which derives from the positivism paradigm of research.En julio de 2018 el Congreso de la República de Colombia emitió la Ley 1915, que tuvo por principal objetivo implementar una “serie de compromisos de carácter comercial adquiridos en el marco de los acuerdos suscritos con los Estados Unidos de América y la Unión Europea”1. Llama la atención en la Ley la consagración, en el artículo 16 referido a limitaciones y excepciones, en el que se establece el uso y reproducción de obras, que por su redacción no se excedan las tipologías tradicionales del concepto mismo de “obra”, haciendo alusión únicamente a una libre reproducción por medios reprográficos de la obra y reproducción temporal en el entorno digital. Con base en lo anterior se ha buscado, a lo largo de este artículo, responder la siguiente pregunta: ¿En qué medida es extensible el régimen de limitaciones y excepciones con propósitos de enseñanza a los programas de computación en Colombia? Esta revisión se ha hecho a través de una metodología eminentemente cualitativa, documental, derivada del paradigma de investigación positivista

Four papers on the economics of technology

This dissertation consists of four chapters on the economics of technology. The chapters study different aspects of innovation generation and diffusion. In broad terms, chapter one looks at how innovation spreads by social contact, while chapter two looks at welfare consequences of diffusion. Chapter three examines how information sources affect diffusion, and chapter four looks at the relation of finance with innovation generation. The first chapter empirically investigates the dynamics of the marginal propensity to pirate for computer software. We introduce a state space formulation that allows us to estimate error structures and parameter significance, in contrast to previous work. For data from 1987-92, we find a rising propensity to pirate as the number of existing pirate copies increases, and higher late piracy incidence than implied by static models. We strengthen prior results on the impact of piracy in the spreadsheet market, finding it to be the only significant internal influence on diffusion. However, when we allow for negative error correlation between legal and pirate acquisitions, we contradict earlier work by finding that, in the word processor market, piracy did not contribute to diffusion and only eroded legal sales. The second chapter is a paper forthcoming in the European Journal of Operational Research. We present an information good pricing model with persistently heterogeneous consumers and a rising marginal propensity for them to pirate. The dynamic pricing problem faced by a legal seller is solved using a flexible numerical procedure with demand discretisation and sales tracking. Three offsetting pricing mechanisms occur: skimming, compressing price changes, and delaying product launch. A novel trade-off in piracy's effect on welfare is identified. We find that piracy quickens sales times and raises welfare in fixed size markets, and does the opposite in growing markets. In our model, consumers benefit from very high rates of piracy, legal sellers always dislike it, and pirate providers like moderate but not very high rates. In the third chapter, we study the effect of different information sources on technology adoption between and within companies. Our model of economically optimising companies predicts that initial adoption will be primarily affected by information that reduces uncertainty about a technology’s performance, while intensification of intra-firm use will be mainly influenced by information that increases income from the technology. The theory is tested on data describing adoption of organic farming techniques by UK farmers. Our predictions are broadly supported by the empirical results. Information from land agents, farmers, and newspapers mainly influences initial adoption, from academia and government largely influences intensification, and from crop consultants, suppliers, and buyers influences both. Financing innovation presents informational and control problems for the financier, and different solutions are used for funding of US companies and universities. In the fourth chapter, we examine how funding characteristics influenced the change in innovation during the 2007-8 financial crisis for both. We extend prior theories of external financing’s effect on company performance during crises, firstly to university performance, and secondly to show the influence of time variation in aggregate funding. Empirical results are consistent with our theory: external dependence and asset intangibility had a limited effect on company innovation on entering the crisis, but increased university innovation. We do not describe here the limitations and gaps of the studies, and proposals for future work. Instead, they are addressed in the conclusions of each chapter

Four papers on the economics of technology

This dissertation consists of four chapters on the economics of technology. The chapters study different aspects of innovation generation and diffusion. In broad terms, chapter one looks at how innovation spreads by social contact, while chapter two looks at welfare consequences of diffusion. Chapter three examines how information sources affect diffusion, and chapter four looks at the relation of finance with innovation generation. The first chapter empirically investigates the dynamics of the marginal propensity to pirate for computer software. We introduce a state space formulation that allows us to estimate error structures and parameter significance, in contrast to previous work. For data from 1987-92, we find a rising propensity to pirate as the number of existing pirate copies increases, and higher late piracy incidence than implied by static models. We strengthen prior results on the impact of piracy in the spreadsheet market, finding it to be the only significant internal influence on diffusion. However, when we allow for negative error correlation between legal and pirate acquisitions, we contradict earlier work by finding that, in the word processor market, piracy did not contribute to diffusion and only eroded legal sales. The second chapter is a paper forthcoming in the European Journal of Operational Research. We present an information good pricing model with persistently heterogeneous consumers and a rising marginal propensity for them to pirate. The dynamic pricing problem faced by a legal seller is solved using a flexible numerical procedure with demand discretisation and sales tracking. Three offsetting pricing mechanisms occur: skimming, compressing price changes, and delaying product launch. A novel trade-off in piracy's effect on welfare is identified. We find that piracy quickens sales times and raises welfare in fixed size markets, and does the opposite in growing markets. In our model, consumers benefit from very high rates of piracy, legal sellers always dislike it, and pirate providers like moderate but not very high rates. In the third chapter, we study the effect of different information sources on technology adoption between and within companies. Our model of economically optimising companies predicts that initial adoption will be primarily affected by information that reduces uncertainty about a technology’s performance, while intensification of intra-firm use will be mainly influenced by information that increases income from the technology. The theory is tested on data describing adoption of organic farming techniques by UK farmers. Our predictions are broadly supported by the empirical results. Information from land agents, farmers, and newspapers mainly influences initial adoption, from academia and government largely influences intensification, and from crop consultants, suppliers, and buyers influences both. Financing innovation presents informational and control problems for the financier, and different solutions are used for funding of US companies and universities. In the fourth chapter, we examine how funding characteristics influenced the change in innovation during the 2007-8 financial crisis for both. We extend prior theories of external financing’s effect on company performance during crises, firstly to university performance, and secondly to show the influence of time variation in aggregate funding. Empirical results are consistent with our theory: external dependence and asset intangibility had a limited effect on company innovation on entering the crisis, but increased university innovation. We do not describe here the limitations and gaps of the studies, and proposals for future work. Instead, they are addressed in the conclusions of each chapter