Market Piracy in the Design-Based Industry : Economics and Policy regulation

Abstract

Market piracy in the design-based industry is an expanding worldwide phenomenon (Grossman and Shapiro, 1988a,b; Chaudhry and Walsh, 1996; Schultz II and Saprito, 1996). It deserves a great deal of attention both because of its impressive international dimension (Verma, 1996) and its intrinsic illegality, ambiguity and powerfull potential links with criminal organizations (Andreano and Sigfried, 1980; Fiorentini and Peltzman, 1995). The aim of this paper is to develop theoretical arguments about economic agents' behavior and to shed some light on the main regulatory issues of illegal markets. At a first sight the room for rational incentives to commercial piracy is self-evident. On one hand, an original backpack by the Italian stylist Prada costs, for instance, $510 in Manhattan, New York, and a bootleg copy costs$ 70 in Rome, just in front of Castel Sant'Angelo. On the other hand, the number of units sold can be impressive: as an example Louis Vuitton sells 3.5 millions units per year. Market piracy is usually noticed in sectors such as luxury goods or fashion, but piracy can also be observed in more traditional sectors such as car manufacturers, "bureautic" industry, cooking utensils, aircraft-parts and so on.