Author: Patrick Waelbroeck (Telecom Paristech) and Martin Quinn (Telecom Paristech)
In this article, we analyze a model with strategic interactions between a right owner who can license parts of its intellectual property to an innovative user who chooses the differentiation degree between his derivative work and the original good, by including more or less of his own ideas. In the last stage of the game, both right owner and innovative user compete in the market place. The rightowner may or not benefit from the existence of the derivative work.
We provide a taxonomy of UGC strategies that can be used by the right owner to set the optimal copyright enforcement level. Our taxonomy is composed from two dimensions. The first is the reputation of the innovative user (famous or unknown). The second is the capacity to create and differentiate his content from the original product (copier or talented artist).
An unknown artist needs the demand generated by the original product to sell, whereas a famous artist has already an established audience.
Moreover, copiers have a larger cost to differentiate their work from the original good than the talented artists.
We show that, regardless of his type, the innovative user can have strategic incentives to differentiate his work from the original product, and therefore reducing product market competition.
We also demonstrate that, even when the innovative user is unknown and need the demand of the original product to sell his work, he can find a profitable strategy to enter the market without canibalizing sales from the original product.