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Lectura final - PIRACY AS STRATEGY A REEXAMINATION OF...

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* The authors wish to thank Mat Hayward and Juan Santaló for his valuable comments on an earlier version of this paper. All errors and omissions are the responsibility of the authors. PIRACY AS STRATEGY? A REEXAMINATION OF PRODUCT PIRACY * David B. Balkin Dean A. Shepherd Julio De Castro IE Working Paper DE8-108-I 30 / 03 / 2004 Univ. of Colorado at Boulder Univ. of Colorado at Boulder Instituto de Empresa Leeds School of Business Leeds School of Business Research Dpt . Boulder, CO 80309-0419 Boulder, CO 80309-0419 Serrano 105 [email protected] [email protected] 28006, Madrid [email protected] Abstract To explore the impact that piracy has on demand for legal versions of a product and firm performance, we use the literatures of information economics and strategic management to expand the analysis of piracy to markets other than software. Our paper helps clarify the nature of customer demand for legal versions of products, and gain a deeper understanding of the way that piracy can enhance the performance of those firms that own the intellectual property. We contend that although piracy represents unauthorized imitation of a firm’s intellectu al property, there are some circumstances when piracy can improve the value of the intellectual property, such that there is a net increase in demand for the legal versions of the product, a reduction in the firm’s expenses in obtaining its sales, and the erection of barriers to producers of (potential) competing legal products.
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IE Working Paper DE8-108-I 31 / 03 / 2004 I NTRODUCTION The phenomenon of product piracy has received increased attention in recent years from both scholars and practitioners. Product piracy is the misappropriation of inte llectual property by a party different from the rightful owner resulting in the making of unauthorized copies of a product (McDonald & Roberts, 1994; Conner & Rumelt, 1991). Product piracy violates copyright or patent law that protects the rights of owners of intellectual property in products such as software, films and books (Burgunder, 1995). The consumer who buys a pirated product is aware that the product is not a legal version of the product but chooses to buy it often because it is less expensive. One reason for the greater threat of piracy nowadays is the use of digital technologies for software, audio and video content. For example, it has been reported that the software industry loses billions of dollars of revenues each year from pirates who make illegal copies of software. It has been estimated that 5 percent of software used in the U.S. is illegal while in China and Russia the rate of illegal copies approaches 90 percent (Horowitz, 2003; Givon, Mahajan & Muller, 1995). Moreover, copied CD music in a digital format has no reduction in quality due to the ease of reproduction of digitally recorded sound. This was not the case when audio tapes were the technology standard not too long ago (Conner & Rumelt, 1991; McDonald & Roberts, 1994; Globerman, 2001). Technology advancements that make piracy easier and the quality of the
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