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Collusion, competition and piracy

  • Francisco Martinez-Sanchez

In this article we analyse firms' ability to tacitly collude on prices in an infinitely repeated duopoly game of vertical product differentiation. We show that firms collude if and only if their discount factor is high enough, that is, if they value future profits sufficiently. We also show that a lower cost of copying facilitates collusion but that a higher quality of the copy hinders collusion. Thus, the overall effect of these new characteristics of copies made by consumers is ambiguous.

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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 18 (2011)
Issue (Month): 11 ()
Pages: 1043-1047

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Handle: RePEc:taf:apeclt:v:18:y:2011:i:11:p:1043-1047
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  1. Liu, Qihong & Serfes, Konstantinos, 2007. "Market segmentation and collusive behavior," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 355-378, April.
  2. Chang, Myong-Hun, 1991. "The effects of product differentiation on collusive pricing," International Journal of Industrial Organization, Elsevier, vol. 9(3), pages 453-469, September.
  3. Paul Belleflamme & Pierre M. Picard, 2004. "Piracy and Competition," CESifo Working Paper Series 1350, CESifo Group Munich.
  4. Francisco Martínez-Sánchez, 2007. "Why Does The Pirate Decide To Be The Leader In Prices?," Working Papers. Serie AD 2007-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  5. Francisco Martinez, 2008. "Learning by Copying," ThE Papers 08/05, Department of Economic Theory and Economic History of the University of Granada..
  6. Hackner, Jonas, 1994. "Collusive pricing in markets for vertically differentiated products," International Journal of Industrial Organization, Elsevier, vol. 12(2), pages 155-177, June.
  7. Bae, Sang Hoo & Choi, Jay Pil, 2006. "A model of piracy," Information Economics and Policy, Elsevier, vol. 18(3), pages 303-320, September.
  8. Schultz, Christian, 2005. "Transparency on the consumer side and tacit collusion," European Economic Review, Elsevier, vol. 49(2), pages 279-297, February.
  9. Hackner, Jonas, 1996. "Optimal symmetric punishments in a Bertrand differentiated products duopoly," International Journal of Industrial Organization, Elsevier, vol. 14(5), pages 611-630, July.
  10. Iturbe-Ormaetxe, Iñigo & Ponti, Giovanni & Tomás, Josefa & Ubeda, Luis, 2011. "Framing effects in public goods: Prospect Theory and experimental evidence," Games and Economic Behavior, Elsevier, vol. 72(2), pages 439-447, June.
  11. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  12. repec:ebl:ecbull:v:6:y:2003:i:10:p:1-9 is not listed on IDEAS
  13. Peitz, Martin & Waelbroeck, Patrick, 2006. "Piracy of digital products: A critical review of the theoretical literature," Information Economics and Policy, Elsevier, vol. 18(4), pages 449-476, November.
  14. Nikolaos Georgantzis & Carlos Gutiérrez-Hita, 2008. "Service provision on a network with endogenous consumption capacity," Working Papers. Serie AD 2008-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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