Piracy, Entry, and Competition in Content Markets

Piracy is central to digital markets, where identical content can be accessed legally or through unauthorized channels. While easier piracy seems likely to intensify competition and lower prices, it also reduces profitability and discourages entry. We develop a circular-city model with free entry in which consumers jointly choose content and access mode. Stronger enforcement raises prices for a fixed number of firms but also attracts competitors. Prices rise with enforcement in less competitive markets but can follow an inverted U in more competitive markets, where entry eventually pushes prices down. Extensions show that piracy can also weaken competition and raise prices by attracting consumers most willing to switch between legal providers.