37 Pages Posted: 17 Dec 2004
Date Written: November 2005
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.
Keywords: information goods, piracy, copyright, pricing
JEL Classification: L13, L82, L86, K11, O34
Suggested Citation: Suggested Citation
Belleflamme, Paul and Picard, Pierre M., Piracy and Competition (November 2005). CESifo Working Paper Series No. 1350. Available at SSRN: https://ssrn.com/abstract=637186
By Urs Gasser