Piracy as an entry deterrence strategy in software market

Jiajia Nie, Ling Zhong*, Gendao Li, Kuo Cao

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish
Pages (from-to)560-572
Number of pages13
JournalEuropean Journal of Operational Research
Volume298
Issue number2
Early online date15 Jun 2021
DOIs
Publication statusPublished - 16 Apr 2022

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