IPR Protection in the High-Tech Industries: A Model of Piracy. Thierry Rayna University of Bristol

Transcription

1 IPR Protection in the High-Tech Industries: A Model of Piracy Thierry Rayna University of Bristol thierry.rayna@bris.ac.uk

2 Digital Goods Are Public, Aren t They? For digital goods to be non-rival, copy should be feasible, fast and costless For digital goods to be non-excludable, consumers should share, and sharing consumers should be available Particular feature of the digital goods: anticopy systems can be embedded in the digital good

3 The Determinants of the Publicness The publicness of digital goods is likely to be variable The determinants of publicness are: The technology The structure of the consumers network The behaviour of the consumers The strategies of the firms The policies of the governments

4 Strategies of the Firms: Decreasing Publicness The firms can devise protection systems allowing to decrease the publicness of digital goods by: Increasing excludability: serial numbers, Windows Product Activation, DRMs, etc. Increasing rivalness: network scans, dongles, tying with tangible good, etc.

5 Is Pirating Always Rational? Free-riding/pirating is rational if the publicness is total. What is the rational behaviour when the publicness varies?

6 A Model of Piracy

7 Description of The Model One representative short lived (one period) digital good Each consumer aims at consuming exactly one unit of digital good per period During each period the consumers have to choose: Whether they pirate or buy the good Whether they share or not the digital good

8 The Environment Variables N i : probability of finding a source on the network (network connectivity) for consumer i E : probability of being excluded R : probability of rivalness to take place Assumptions: N i, E, R [0, 1]

9 Other Variables u i : utility obtained when consuming the good for consumer i p s c : price of the digital good : cost of searching for a pirated good : cost of copying the digital good g i : benefit/cost of sharing for consumer i Assumptions: u i > p > s + c > 0

10 Full Game Tree ( s, 0) ( s c, 0) Player i Pirates 1 N i No source found N i Player j Shares E 1 E Exclusion R Rivalness ( s c, g j u j ) Buys Doesn t share 1 R (u i p, 0) ( s, 0) (u i s c, g j )

11 The Impact of the Strategies of the Firms Firms are able to increase the level of excludability (E) and rivalness (R). We define critical values E* and R* such that the consumers do not pirate and/or share when these levels are exceeded. We also define a critical value for network connectivity N* such that the consumers never pirate when the connectivity is below this level. These critical values can either be absolute or relative.

12 Simplified Payoff Matrix The strategies of each players have two components based on whether they pirate (P ) of not ( P ) and whether they share (S) or not ( S). There are thus four different strategies available to each player: {P S, P S, P S, P S}. P S P S P S P S P S G P + G S, G P + G S s + G S, G P G P, G B + G S s, G B P S G P, s + G S s, s G P, G B + G S s, G B P S G B + G S, G P G B + G S, G P G B, G B G B, G B P S G B, s G B, s G B, G B G B, G B With: G P = N i (1 E)(1 R)u i N i c s G S = g i (1 E)Ru i G B = u i p

13 Equilibria in the One- Shot Game As long as sharing is costly, the consumers are in the Prisoner s Dilemma situation. The unique equilibrium is: consumers do not pirate and do not share. As long as the combined payoff of pirating and sharing is greater than the payoff of buying, this equilibrium is sub-optimal.

14 One-Shot Game with Forced Cooperation A new rule is introduced: consumers who pirate are forced to share. In this case, when sharing is costly, and when the combined benefits of pirating and sharing are greater than the payoff of buying, there are two Nash equilibria: Consumers do not pirate and do not share Consumers pirate and share Thus the Pareto outcome is achievable.

15 Critical Values with Forced Cooperation When these values are reached, the combined payoff of pirating and sharing becomes lower that the payoff of buying: consumers do not pirate. N i = u i p + s g i u i c E (N i ) = R (N i ) = p s N ic (1 N i )u i + g i N i u i E (N i, R) = p s N ic + g i (1 N i (1 R) + R)u i (N i (1 R) R)u i R (N i, E) = p s N ic + g i (1 N i (1 E) + E)u i (N i (1 E) E)u i

16 Impact of the Variables on the Critical Values u i s c p g i N E R N* E* R*

17 Equilibria in the Infinitely Repeated Game The game is repeated infinitely with a discount factor. There is no forced cooperation. The stage-game Nash equilibrium, where consumers do not pirate and share, played repeatedly is a subgame perfect Nash equilibrium (SPNE). The payoffs of this equilibrium are the minmax payoffs for each player, and can be used as a punishment in a cooperative strategy.

18 Sustainable Piracy Using the following simple cooperative strategy with grim-trigger punishment: Pirate and share if pirate and share was played before Buy and do not share otherwise we show that a SPNE based on this strategy exist if: The combined payoff of pirating and sharing is higher than the payoff of buying The discount ratio,, is higher than a critical value, *. * increases with u i, s, and c; it decreases with p and g i δ = G S G B G P

19 Sustainable Piracies Many types of SPNE involving asymmetric payoffs and/or evolved forms of punishment exist. We establish a Folk Theorem allowing to define all the SPNE of the game. As long as the discount factor is sufficiently close to one, any pair of average discounted payoff greater than the minmax payoffs can be supported as a SPNE. For example: Rare episodes of cooperative piracy are sustainable Episodes of planned reciprocal defection are sustainable

20 Achievable Payoffs Unachievable Payoffs Set of supportable SPNE average payoffs

21 Analysis: The Extent of Piracy MANY different cooperative pirating strategies are sustainable. This explains why the piracy behaviour of consumers is very heterogeneous. This variety makes it extremely difficult to monitor and detect infringements.

22 Analysis: Anti-Piracy Tips An increase in rivalness unambiguously decreases the combined payoff of pirating and sharing. On the contrary, an increase in excludability has an ambiguous effect on the combined payoff of pirating and sharing. Rivalness-based anti-piracy strategies are thus, in general, preferable. If an increase in publicness is costly, a decrease in price can be a substitute strategy. Both types of strategies can also be use concurrently.

23 Analysis: International Piracy Different consumers/consumers in different countries are likely to have different costs. In developed countries, G S is likely to be high and G B - G P moderately small In developing countries, G S is likely to be close to zero and G B - G P quite large The following cooperative equilibrium is sustainable: Consumers in develop countries pirate all the time Consumers in developing countries share all the time and virtually never pirate