Transaction Utility of End-User Pirates – An Analysis

Abstract

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.