Essays on the Economics of Intellectual Property Rights
"This dissertation discusses the economics of information goods and intellectual property rights from two perspectives. In the first of the three main essays of the dissertation, I implement imperfect intellectual property rights into a “pool of knowledge” endogenous growth model. The adjustable parameters of the resulting model include the hazard rate of imitation and the patentability requirement. These are viewed as policy variables which may be chosen by a social planner. The model leads to a natural definition of growth traps which are due to slow growth in the past, and it has growth traps among its equilibria when the rate of imitation is small but positive. The growth-maximizing value of the imitation rate is zero, but the welfare effects of imitation may be positive. The growth-maximizing and welfare-maximizing patentability requirements can have any positive values below a theoretical maximum. A low patentability requirement is growth-maximizing in slowly growing economies.
The two other main essays of the dissertation discuss commercial piracy in a microeconomic setting. In these essays I consider a model in which the seemingly puzzling fact that the competition between commercial pirates does not always drive their profits to zero is explained by postulating that the risk of a punishment for offering pirate copies for sale functions analogously with an advertising cost. In addition, the market for pirate copies may also be affected by the fixed costs of the pirates, which can be caused by punishments or Digital Rights Management (DRM) systems. In the second main essay of my dissertation I present a systematic analysis of the effects of these policy variables and of the quality of pirate copies on the market for an information good. It turns out that, whereas it is always in the interest of the copyright owner that the fixed costs of the pirates are increased, this is not necessarily true of their “advertising costs”.
In the last of the three main essays, I generalize my model of commercial piracy to network industries. This is motivated by the fact that, although it has often been shown that end-user piracy may increase the profits of copyright owners in the presence network externalities, in the earlier literature there have not been any analogous analyses of the effects of commercial piracy. The model yields a characterization of the optimal pricing policy of a copyright owner in the presence of network externalities, and shows how the profit-maximizing intellectual property protection strength increases with the quality of pirate copies."