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Anti-piracy policy and quality differential in markets for information goods

  • Francisco Martínez-Sánchez

    ()

    (Universidad de Alicante)

  • Javier M. López Cuñat

    (Universidad de Alicante)

In this paper we analyze the strategic decisions of the government, the incumbent and the pirate in a market where the good is piratable. We show that deterred or accommodated piracy can occur in equilibrium, but pure monopoly cannot occur for any anti-piracy policy. We also show that the initial quality differential between the original and the pirated product is essential to explain the effects of an increase in the quality of pirated product on both the level of piracy and the optimal monitoring rate. Assuming a one-stage entry process and a sufficiently high quality differential, we prove that the incumbent always prefers to move first and make a credible commitment to a price. However, this is not true with a two-stage entry process.

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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2011-02.

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Length: 26 pages
Date of creation: Jan 2011
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2011-02
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  1. Crampes, C. & Hollander, A., 1992. "Duopoly and Quality Standards," Papers 92.g, Toulouse - GREMAQ.
  2. Marco van der Leij & Sanjeev Goyal, 2010. "Strong ties in a small world," Working Papers. Serie AD 2010-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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  4. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-31, June.
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  14. 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.
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  17. Sougata Poddar, 2005. "Network Externality and Commercial Software Piracy," Departmental Working Papers wp0516, National University of Singapore, Department of Economics.
  18. Marron, Donald B & Steel, David G, 2000. "Which Countries Protect Intellectual Property? The Case of Software Piracy," Economic Inquiry, Western Economic Association International, vol. 38(2), pages 159-74, April.
  19. Arai, Yasuhiro, 2011. "Civil and criminal penalties for copyright infringement," Information Economics and Policy, Elsevier, vol. 23(3), pages 270-280.
  20. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
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  22. Wauthy, Xavier, 1996. "Quality Choice in Models of Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 345-53, September.
  23. MartI´nez-Sánchez, Francisco, 2010. "Avoiding commercial piracy," Information Economics and Policy, Elsevier, vol. 22(4), pages 398-408, December.
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