Piracy and Competition

34 Pages Posted: 11 May 2007

See all articles by Paul Belleflamme

Paul Belleflamme

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

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Abstract

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.

Suggested Citation

Belleflamme, Paul and Picard, Pierre M., Piracy and Competition. Journal of Economics & Management Strategy, Vol. 16, No. 2, pp. 351-383, Summer 2007. Available at SSRN: https://ssrn.com/abstract=986020 or http://dx.doi.org/10.1111/j.1530-9134.2007.00142.x

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CORE and Louvain School of Management, UCL (Université Catholique de Louvain) ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Pierre M. Picard

Centre de Recherche en Économie Appliquée (CREA) ( email )

Campus Limpertsberg
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Luxembourg, 1511
Luxembourg

Universite du Luxembourg

L-1511 Luxembourg
Luxembourg

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