Settling Lawsuits with Pirates

64 Pages Posted: 6 Aug 2020 Last revised: 8 Aug 2020

See all articles by Xinyu Hua

Xinyu Hua

Hong Kong University of Science & Technology (HKUST) - Department of Economics

Kathryn E. Spier

Harvard University - Law School - Faculty; National Bureau of Economic Research (NBER)

Date Written: July 9, 2020

Abstract

A firm licenses a product to overlapping generations of heterogeneous consumers. Consumers may purchase the product, pirate/steal it, or forego it. Higher consumer types enjoy higher gross benefits and are caught stealing at a higher rate. The firm may commit to an out-of-court cash settlement policy that is “soft” on pirates, so high-types purchase and low-types steal. This facilitates price discrimination. Firm profits rise if the firm bundles a license agreement with the cash settlement. However, requiring pirates to sign license agreements as part of the settlement has ambiguous welfare effects and may deter the entry of more efficient competitors.

Keywords: Intellectual property rights, litigation, settlement, copyright infringement, licensing, price discrimination, mechanism design

JEL Classification: D82, K11, O34

Suggested Citation

Hua, Xinyu and Spier, Kathryn E., Settling Lawsuits with Pirates (July 9, 2020). Available at SSRN: https://ssrn.com/abstract=3647244 or http://dx.doi.org/10.2139/ssrn.3647244

Xinyu Hua

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Kowloon, Hong Kong
China

Kathryn E. Spier (Contact Author)

Harvard University - Law School - Faculty ( email )

1575 Massachusetts
Hauser 302
Cambridge, MA 02138
United States
(617) 496-0019 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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