Abstract
In a duopoly, we study the interaction between public (copyright) and private protection of intellectual property rights (IPR). Software developers offer products with differing qualities and compete for heterogeneous users, who may buy a legal version, an illegal copy, or no product.
Illegal usage is punishable when caught. A developer decides whether to use private IPR protection, given the degree of public IPR protection.
We analyze the impact of private and public IPR protection on the developers' pricing, using monopoly as a benchmark. We show that monopoly pricing is not marginally affected by either public or private protection.
We also show that both types of protection may affect duopoly pricing by softening price competition. Finally, we find the interaction between public and private protection in a duopoly but not in a monopoly.
Moreover, strategic substitutability and complementarity can exist between the public and private IPR, depending on the strength of the copyright.