Software Piracy on Internet Auctions

1. Introduction

The Internet has permanently changed the way consumers purchase goods. The use of Internet auctions has become more and more popular. An Internet auction is a virtual market place in which businesses and consumers can sell their products. This ‘new’ and quick type of trading without leaving your house is attractive to a lot of people. Famous auctions like eBay, Amazon & Yahoo became very popular destinations on the internet. There are different types of internet auctions. Generally, when people speak of electronic commerce and the individual customer, we most commonly think of business-to-consumer transactions, but one of the most innovative developments in electronic commerce is the rapidly growing Consumer-to-Consumer (C2C) market (SIIA, 2001). With the huge benefits of electronic commerce also come a lot of disadvantages. The C2C markets also created new opportunities for software piracy. Through auction sites, software pirates are using new tactics to reach a huge audience, developing a thriving new customer base among often unsuspecting individuals. Software pirates have learned to manipulate Internet auction sites to reach hundreds of unknowing consumers everyday (SIIA, 2001). Pirated software might seem a good deal, because it is often very cheap, but many of such software may contain a virus. This software is also very illegal and will not be supported by the publisher. This paper will explain what software piracy is and what problems arise because of software piracy.

First, the paper will explain in more detail what an Internet auction is and what different types of auctions exist. It will also talk about the relation between the classical model of demand and supply and internet auctions and about bidding behaviour. Second, it will explain what piracy exactly is and it will talk about the evolution of software piracy. Next, the paper will discuss which factors led to more Internet piracy and after that, the tactics of the software pirates will be discussed. It will also mention what the governments and the auction sites are trying to do to decrease Internet piracy. Finally, this paper will discuss the economic effects of pirated software.

2. Internet auctions

An auction is the process of buying and selling things by offering them up for bid, taking bids, and then selling the item to the highest bidder (Feldman & Kumar, n.d.). Nowadays Internet auctions are very popular. The reason for this is that you can bid very quickly and you do not have to leave the house to bid. According to reports of the SIIA (2006), consumer-to-consumer online auction revenue climbed from $4 billion in 1999 to more than $15 billion in 2004.

There are different types of Internet auctions. For example you have an English auction, in which every bidder can hear the bid of the rival buyer and has a limited time to respond to it with a higher bid (Feldman & Kumar, n.d.). In a sealed bid auction there is a specific deadline. The seller keeps the bids of the other potential buyers secret until that deadline and then he announces the winner. The disadvantage of this way of bidding is that the different bidders do not know how high other bids are and they can not overbid each other. Another type is the Dutch auction, which works very different compared to other auction types. The seller places a very high asking price and then he slowly decreases it until buyers start placing bids and tell the seller how many items they will buy at that current asking price.

eBay and Amazon use different rules for ending an auction. Roth and Ockenfels (n.d.), found that on eBay there is a fixed end time, also called ‘a hard close’, while auctions on Amazon are automatically extended if necessary past the scheduled end time until ten minutes have passed without a bid. This causes a lot of last minute bidding, a practice called ‘sniping’, on eBay. Both auctioneers and sellers are not very happy with this type of bidding behaviour and therefore they advice bidders that they should simply submit their maximum bid early in the auction (Roth & Ockenfels, n.d.).

To bid on products on Internet auctions, the buyer has to fulfil to some rules. For example on eBay, you have to be registered before you can bid on items. And when you register, you always have to confirm an agreement in which the auction rules are stated.

An important rule, for example, is that the person with the highest bid has the right to buy the product. Another one is that once you have bed, your bid is final and non-retractable (Audiogon, 2006).

Peters and Severinov (2002) found that Internet markets do not follow the classical model of demand and supply. The first difference is the way of price setting. The sellers do not have a fixed price