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Why Does The Pirate Decide To Be The Leader In Prices?

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  • Francisco Martínez-Sánchez

    ()
    (Universidad de Alicante)

Abstract

We analyze the roles of the government and the incumbent in preventing piracy, and the reasons and incentives why a pirate would want to be a leader in prices. The framework of analysis used is a duopoly model of vertical product differentiation with price competition, where both incumbent and pirate are committed to keep their prices. We find that both government and incumbent have a key role in avoiding the entry of the pirate. We show that the government will not help the incumbent to become a monopolist, even if he installs an antipiracy system, because a monopoly provides the lowest social welfare. However, he will let the pirate enters as a follower or as a leader, or encourage the incumbent to deter the entry of the pirate, which depends on the technology of the government for monitoring piracy. The pirate decides to become a leader to avoid being brought down by the incumbent and the government, although the leader's profit is lower than the follower's profit. Finally, we find that high-income countries with cheaper monitoring technology have lower piracy rates.

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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2007-01.

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Length: 26 pages
Date of creation: Mar 2007
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2007-01

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Related research

Keywords: Pirate; Incumbent; Government; Price Leadership; Copy; Monitoring Piracy; Income;

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References

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Cited by:
  1. Francisco Martinez-Sanchez, 2011. "Collusion, competition and piracy," Applied Economics Letters, Taylor & Francis Journals, vol. 18(11), pages 1043-1047.

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