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Piracy and Competition
Author(s) -
Belleflamme Paul,
Picard Pierre M.
Publication year - 2007
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1530-9134.2007.00142.x
Subject(s) - duopoly , bertrand competition , microeconomics , competition (biology) , economics , copying , interdependence , nash equilibrium , incentive , price dispersion , private information retrieval , returns to scale , industrial organization , oligopoly , production (economics) , cournot competition , computer science , ecology , computer security , political science , law , biology
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.