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Piracy and competition

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  • BELLEFLAMME, Paul
  • PICARD, Pierre M.

Abstract

The effects of (private, small-scale) piracy on the pricing behavior of producers of information goods are studied within a unified model of vertical differentiation. Although information goods are assumed to be perfectly differentiated, demands are interdependent because the copying technology exhibits increasing returns to scale. We characterize the Bertrand-Nash equiliria in a duopoly. Comparing equilibrium prices to the prices set by a multiproduct monopolist, we show that competition drives prices up and may lead to price dispersion. Competition reduces total surplus in the short run but provides higher incentives to create in the long run.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -1919.

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Handle: RePEc:cor:louvrp:-1919

Note: In : Journal of Economics & Management Strategy, 16(2), 351-383, 2007
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References

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  1. Bae, Sang Hoo & Choi, Jay Pil, 2006. "A model of piracy," Information Economics and Policy, Elsevier, Elsevier, vol. 18(3), pages 303-320, September.
  2. GABZEWICZ, Jean & SONNAC, Nathalie & WAUTHY, Xavier, . "On price competition with complementary goods," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1505, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, Elsevier, vol. 18(2), pages 301-317, August.
  4. BELLEFLAMME, Paul & PICARD, Pierre M., 2004. "Competition over piratable goods," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2004055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. repec:fth:louvco:9783 is not listed on IDEAS
  6. Nicolas Boccard & Xavier Wauthy, 2003. "Optimal Quotas, Price Competition And Products' Attributes," The Japanese Economic Review, Japanese Economic Association, Japanese Economic Association, vol. 54(4), pages 395-408.
  7. Johnson, William R, 1985. "The Economics of Copying," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(1), pages 158-74, February.
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  16. SHY, Oz & THISSE, Jacques-François, . "A strategic approach to software protection," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1413, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  17. BOCCARD, Nicolas & WAUTHY, Xavier, 1997. "The hotelling model with capacity precommitment," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1997083, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  18. Landes, William M & Posner, Richard A, 1989. "An Economic Analysis of Copyright Law," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 18(2), pages 325-63, June.
  19. Martin Peitz & Patrick Waelbroeck, 2003. "Piracy of Digital Products: A Critical Review of the Economics Literature," CESifo Working Paper Series 1071, CESifo Group Munich.
  20. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, American Economic Association, vol. 91(3), pages 454-474, June.
  21. Gayer, Amit & Shy, Oz, 2003. "Copyright protection and hardware taxation," Information Economics and Policy, Elsevier, Elsevier, vol. 15(4), pages 467-483, December.
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Citations

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Cited by:
  1. Tsai, Ming-Fang & Chiou, Jiunn-Rong & Lin, Chun-Hung A., 2012. "A model of counterfeiting: A duopoly approach," Japan and the World Economy, Elsevier, Elsevier, vol. 24(4), pages 283-291.
  2. Francisco Martinez-Sanchez, 2011. "Collusion, competition and piracy," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 18(11), pages 1043-1047.
  3. Choi, Pilsik & Bae, Sang Hoo & Jun, Jongbyung, 2010. "Digital piracy and firms' strategic interactions: The effects of public copy protection and DRM similarity," Information Economics and Policy, Elsevier, Elsevier, vol. 22(4), pages 354-364, December.
  4. Balestrino, Alessandro, 2008. "It is a theft but not a crime," European Journal of Political Economy, Elsevier, vol. 24(2), pages 455-469, June.
  5. Bae, Sang Hoo & Choi, Jay Pil, 2006. "A model of piracy," Information Economics and Policy, Elsevier, Elsevier, vol. 18(3), pages 303-320, September.
  6. Derek Eaton, 2013. "Innovation and IPRs in the Agricultural Seed Sector," CIES Research Paper series 19-2013, Centre for International Environmental Studies, The Graduate Institute.
  7. Berger, Florian & Blind, Knut & Cuntz, Alexander, 2012. "Risk factors and mechanisms of technology and insignia copying—A first empirical approach," Research Policy, Elsevier, Elsevier, vol. 41(2), pages 376-390.
  8. Francisco Martinez, 2008. "Learning by Copying," ThE Papers, Department of Economic Theory and Economic History of the University of Granada. 08/05, Department of Economic Theory and Economic History of the University of Granada..
  9. Éric Darmon & Thomas Le Texier, 2014. "Private or Public Law Enforcement? The Case of Digital Piracy Policies with Non-monitored Illegal Behaviors," Economics Working Paper Archive (University of Rennes 1 & University of Caen), Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS 201403, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  10. Minniti, Antonio & Vergari, Cecilia, 2010. "Turning Piracy into Profits: a Theoretical Investigation," Information Economics and Policy, Elsevier, Elsevier, vol. 22(4), pages 379-390, December.
  11. Francesco BALDUCCI, 2010. "The Web's Promotional Effect and Artists' Strategies," Working Papers, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali 345, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  12. Jiri Strelicky & Kresimir Zigic, 2011. "Intellectual Property Rights Protection and Enforcement in a Software Duopoly," CERGE-EI Working Papers wp435, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  13. Yuanzhu Lu & Sougata Poddar, 2009. "Accommodation or Deterrence in the Face of Commercial Piracy: the Impact of Intellectual Property Rights (IPR) Protection," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 389, China Economics and Management Academy, Central University of Finance and Economics.
  14. Mealem, Yosef & Yacobi, Yacov & Yaniv, Gideon, 2010. "Trademark infringement and optimal monitoring policy," Journal of Economics and Business, Elsevier, Elsevier, vol. 62(2), pages 116-128, March.

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