Munich Personal RePEc Archive

What is the True Loss Due to Piracy?: Evidence from Microsoft Office in Hong Kong

Leung, Tin Cheuk (2011): What is the True Loss Due to Piracy?: Evidence from Microsoft Office in Hong Kong.

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Abstract

Software piracy remains rampant despite the successful measures the Hong Kong government has taken to eradicate street piracy. This is because most people prefer substituting a counterfeit copy of a software CD (street piracy) with an illegal download of the software (Internet piracy). To support this claim, I construct a unique data set from 281 college students in Hong Kong to demonstrate two things. First, I estimate a random-coefficient discrete choice demand system for Microsoft Office from legal and different illegal sources. Estimates obtained from a Bayesian approach, with a mixture of normal priors, indicate a strong substitution pattern between street piracy and Internet piracy. Second, I conduct counterfactuals in which street piracy is absent. Results are twofold. First, most students would switch to Internet piracy. Second, the government, by assuming that each pirated copy represents a lost sale, may over-estimate the gain from eradicating piracy by up to nine times.

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