Exploring the strategy of controlling software piracy based on prospect theory

Abstract

Based on the analyses and comparison of utility value between legitimate supplier and pirate, this paper selects the value difference as the reference point of profit and loss of legitimate supplier. Applying the value function effect of prospect theory into investigating the change of the reference point, we could find that the pricing strategy of legitimate supplier not only affects their own interests, but also may change the illegal activity of pirate and the purchase intention of consumer notably. For legitimate supplier, adopting low-price strategy is more conducive to increase their own interests, and could also mitigate the piracy problem. When using the weighting function effect of prospect theory reasonably, we could reduce the probability at which consumer chooses pirate effectively, and lower the cost of supervision relatively. In final, we point out the directions of future research, that is, how to apply prospect theory into exploring piracy control strategies combinations.