1. Piracy as an entry deterrence strategy in software market
- Author
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Gendao Li, Kuo Cao, Jiajia Nie, and Ling Zhong
- Subjects
050210 logistics & transportation ,021103 operations research ,Information Systems and Management ,ComputingMilieux_THECOMPUTINGPROFESSION ,General Computer Science ,05 social sciences ,Counterintuitive ,0211 other engineering and technologies ,ComputingMilieux_LEGALASPECTSOFCOMPUTING ,02 engineering and technology ,Management Science and Operations Research ,Industrial and Manufacturing Engineering ,Competition (economics) ,Entry cost ,Modeling and Simulation ,0502 economics and business ,Potential market ,Deterrence theory ,Business ,Enforcement ,Network effect ,Software market ,Industrial organization - Abstract
Piracy is commonly believed to be detrimental to legal suppliers, so strong enforcement against piracy is expected. However, in practice, some companies do not deter piracy actively which seems counterintuitive. To explore the rationale behind the uncommon phenomenon, this paper explores the piracy issue from the entry deterrence perspective. In particular, we study an incumbent’s entry deterrence strategy using piracy when facing a potential entrant who offers similar products in the market. The incumbent decides whether to deter the piracy, and the entrant chooses whether to enter the market by anticipating the competition in the potential market and the entry cost. By analyzing the strategies of both the incumbent and the entrant, we find that deterring piracy is not always a good strategy since piracy could be used as a deterring strategy on the entrant, which explains the practices in many companies. Specifically, we find that when the entry cost is moderate, the incumbent accommodates piracy when the entrant is more of a threat, and piracy serves as a partner of the incumbent to prevent the entry of a powerful entrant. This conclusion also holds when considering the entry deterrence cost, network effect and the entrant is a high end substitute.
- Published
- 2022
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