The present study hypothesized the concept of transaction utility that consumers receive from end-user piracy and assumes that it is positively associated with the difference between the price of original good and cost of copying the pirated product. We assume two groups of consumers – one enjoying transaction utility from piracy and the other not enjoying the same. The results show that a monopolist producing information-goods will adopt a low-price low-quality strategy in presence of transaction utility. An increase in the quality of the pirated product will also induce the firm to continue with the low-price–low-quality strategy. However, an increase in the proportion of the consumers not receiving transaction utility from piracy will increase the price and quality of the original good. In addition, with an increase in the average and marginal willingness-to-pay parameter of the consumers, the price, quality and profit of the original good will increase. The expected piracy rate is observed to be decreasing in transaction utility parameter when the upper boundary of willingness-to-pay parameter of the consumer is below a critical level.

The study develops a vertically differentiated duopoly model in the presence of commercial piracy with two groups of consumers, a business group and a home group, with the former having higher willingness to pay for the product. A firm producing an original information good sells it with endogenously chosen product quality and acts as a price leader, and the commercial pirate becomes the price follower. There exists a stringent government policy of monitoring commercial piracy, which increases the marginal cost of the pirate. We study and compare the two regimes of no-versioning (selling a single quality product) and product versioning (selling products with different price and quality combinations to different consumer groups). In the versioning regime, depending upon demand and government monitoring parameters, two equilibria are observed. Comparing the original firm's profit in each of these versioning cases suggests that versioning may or may not be the original firm's optimal strategy in the presence of commercial piracy. This result is counterintuitive to existing literature on product versioning in the context of enduser piracy.