Paper Abstract
1085. Xinyu Hua & Kathryn E. Spier, Settling Lawsuits with Pirates, 08/2022; forthcoming in International Economic Review.
Abstract: A firm licenses a product to overlapping generations of heterogeneous consumers. Consumers may purchase the product, pirate/steal it, or forego it. Higher consumer types enjoy higher gross benefits and are caught stealing at a higher rate. The firm may commit to an out-of-court settlement policy that is "soft" on pirates, so high-types purchase the product and low-types steal it until caught. Settlement contracts, which include both cash payments and licenses for future product use, facilitate price discrimination. Settlement may either create social value by expanding the market or destroy value by limiting market access and possibly deterring more efficient entrants.