Piracy and Competition
CORE and Louvain School of Management, UCL (Université Catholique de Louvain); CESifo (Center for Economic Studies and Ifo Institute)
Pierre M. Picard
Centre de Recherche en Économie Appliquée (CREA); Universite du Luxembourg
CESifo Working Paper Series No. 1350
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 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 may lead to price dispersion. Competition reduces total surplus in the short run but provides higher incentives to create in the long run.
Number of Pages in PDF File: 37
Keywords: information goods, piracy, copyright, pricing
JEL Classification: L13, L82, L86, K11, O34
Date posted: December 17, 2004
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