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Piracy and Competition

  • Paul Belleflamme
  • Pierre M. Picard

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 horizontally differentiated, demands are interdependent because the copying technology exhibits increasing returns to scale. We characterize the Bertrand-Nash equilibria in a duopoly. Comparing equilibrium prices to the prices set by a multiproduct monopolist, we show that competition drives prices up and reduces total surplus.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1350.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1350
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  1. Besen, Stanley M & Kirby, Sheila Nataraj, 1989. "Private Copying, Appropriability, and Optimal Copying Royalties," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages 255-80, October.
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  3. P Belleflamme & P M Picard, 2003. "Competition over Piratable Goods," The School of Economics Discussion Paper Series 0332, Economics, The University of Manchester.
  4. GABZEWICZ, Jean & SONNAC, Nathalie & WAUTHY, Xavier, . "On price competition with complementary goods," CORE Discussion Papers RP -1505, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  9. Bae, Sang Hoo & Choi, Jay Pil, 2006. "A model of piracy," Information Economics and Policy, Elsevier, vol. 18(3), pages 303-320, September.
  10. Boccard, N. & Wauthy, Xavier, 1996. "The Hotelling Model with Capacity Precommitment," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1997030, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Nov 1997.
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  14. Ganesh Iyer & Amit Pazgal, 2003. "Internet Shopping Agents: Virtual Co-Location and Competition," Marketing Science, INFORMS, vol. 22(1), pages 85-106, November.
  15. Martin Peitz & Patrick Waelbroeck, 2003. "Piracy of Digital Products: A Critical Review of the Economics Literature," CESifo Working Paper Series 1071, CESifo Group Munich.
  16. Liebowitz, S J, 1985. "Copying and Indirect Appropriability: Photocopying of Journals," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 945-57, October.
  17. Landes, William M & Posner, Richard A, 1989. "An Economic Analysis of Copyright Law," The Journal of Legal Studies, University of Chicago Press, vol. 18(2), pages 325-63, June.
  18. Johnson, William R, 1985. "The Economics of Copying," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 158-74, February.
  19. Novos, Ian E & Waldman, Michael, 1984. "The Effects of Increased Copyright Protection: An Analytic Approach," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 236-46, April.
  20. Takeyama, Lisa N, 1994. "The Welfare Implications of Unauthorized Reproduction of Intellectual Property in the Presence of Demand Network Externalities," Journal of Industrial Economics, Wiley Blackwell, vol. 42(2), pages 155-66, June.
  21. Yoon, Kiho, 2002. "The optimal level of copyright protection," Information Economics and Policy, Elsevier, vol. 14(3), pages 327-348, September.
  22. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  23. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
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