Essays on the economics of intellectual property.

Abstract

This dissertation evaluates the effectiveness of different polices on intellectual property when piracy is growing. The first chapter deals with music piracy. Two beliefs about music piracy prevail in the music industry. First, music piracy hurts music record sales. Second, the only copyright regime that can help the music industry is one that will eradicate music piracy. This chapter finds that the first belief is right while the second is wrong; as the music industry overlooks the complementary effect of music piracy on products such MP3 players. I construct a unique data set from 883 undergraduate students, estimate the demand for music and iPods and show three things. First, music piracy does hurt record sales. Second, music piracy contributes 20% to iPod sales. Finally, I conduct counterfactuals to evaluate the welfare effect of different copyright regimes. While a regime that eradicates music piracy benefits music producers at the expense of students and Apple, another regime in which Apple pays royalties to music producers for legalizing music piracy benefits most students and music producers at the expense of Apple. The second chapter deals with software piracy. Chinese and Hong Kong governments enforce intellectual property rights by eradicating street piracy. This chapter shows that this policy is ineffective due to the emergence of Internet piracy. To support the claim, I construct a unique data set from 222 college students in Hong Kong to demonstrate two things. First, I estimate a random-coefficient discrete choice demand system for Microsoft Office from legal and different illegal sources. Estimates obtained from a Bayesian approach, with a mixture of normal prior, indicates a strong substitution pattern between street and Internet piracy. Second, I conduct counterfactuals in which counterfeit Microsoft Office DVD is not available. Results are threefold. First, only 31% of students who bought counterfeit DVD would choose to buy a legal copy, while approximately 50% of them would switch to download on the Internet. Second, the decrease in consumer surplus ($43/student) outweighs the increase in Microsoft's profit ($6/student). Third, Business Software Alliance (BSA) overestimates the revenue loss due to piracy by up to six times since it ignores the substitution pattern between street and Internet piracy.