Optimal strategic pricing of reproducible consumer products

This paper investigates the strategic pricing of consumer durable products which can be acquired through either purchase or reproduction (e.g., computer software). As copy piracy results in an opportunity loss, its adverse effect on profits needs to be incorporated in strategicdecisions such as pricing. Using a dual diffusion model wich parsimoniously describes sales and copying, and employing control theory methodology, optimal price trajectories are derived for the period of monopoly. The results indicate that (a) in absence of any protection, skimming pricing startegies are generally otpimal, and (b) copy protection is warranted only whn sales diffuse much faster than copying and the protection technology does not significantly raise themarginal production cost.