Preventing commercial piracy when consumers are loss averse

Francisco Martínez-Sánchez

Information Economics and Policy, 2020, vol. 53, issue C

Abstract: I analyze how the loss aversion of consumers affects the strategies of the government and the incumbent for preventing commercial piracy. To that end, I develop a sequential duopoly model of vertical product differentiation with price competition in which consumers have a reference-dependent utility. Regardless of the quality of the illegal copy, conventional models that do not take into account the loss aversion of consumers overestimate the government’s effort to deter piracy but underestimate the incumbent’s effort. Contrary to conventional wisdom, I find that blocking the entry of a pirate by the government can provide more welfare than accommodating it. However, the government will not block it because socially it is better to encourage the incumbent to establish a price low enough to deter the pirate from entering.

Keywords: reference-dependent utility; loss aversion; commercial piracy; government; incumbent; pirate (search for similar items in EconPapers)
JEL-codes: D23 D43 D90 K42 L13 O38 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167624520301402
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:iepoli:v:53:y:2020:i:c:s0167624520301402

DOI: 10.1016/j.infoecopol.2020.100896

Access Statistics for this article

Information Economics and Policy is currently edited by D. Waterman

More articles in Information Economics and Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().