Copyright protection and innovation in the presence of commercial piracy

This paper uses a strategic entry-deterrence approach to address the effects of anti-commercial piracy policies on a firm’s incentive to innovate. Monitoring increases the firm’s incentive to innovate. However, inclusion of innovation does not necessarily result in monitoring as the socially optimal policy. If monitoring is the socially optimal policy then the commercial pirate’s entry may or may not be deterred. The entry-deterring limit price and quality is less than that in the monopoly case. Only in the extreme situation the monopoly results are restored.