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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.

Suggested Citation

  • 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).
  • Handle: RePEc:ivi:wpasad:2007-01
    as

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2007-01.pdf
    File Function: Fisrt version / Primera version, 2007
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    References listed on IDEAS

    as
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    Cited by:

    1. Francisco Martinez-Sanchez, 2011. "Collusion, competition and piracy," Applied Economics Letters, Taylor & Francis Journals, pages 1043-1047.

    More about this item

    Keywords

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

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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