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WHY DOES THE PIRATE DECIDE TO BE THE LEADER IN PRICES?

Francisco Martínez-Sánchez

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: We analyze the roles of the government and the incumbent in preventing piracy, and the reasons and incentives why a pirate would want to be a leader in prices. The framework of analysis used is a duopoly model of vertical product differentiation with price competition, where both incumbent and pirate are committed to keep their prices. We find that both government and incumbent have a key role in avoiding the entry of the pirate. We show that the government will not help the incumbent to become a monopolist, even if he installs an antipiracy system, because a monopoly provides the lowest social welfare. However, he will let the pirate enters as a follower or as a leader, or encourage the incumbent to deter the entry of the pirate, which depends on the technology of the government for monitoring piracy. The pirate decides to become a leader to avoid being brought down by the incumbent and the government, although the leader's profit is lower than the follower's profit. Finally, we find that high-income countries with cheaper monitoring technology have lower piracy rates.

Keywords: Pirate; Incumbent; Government; Price Leadership; Copy; Monitoring Piracy; Income (search for similar items in EconPapers)
JEL-codes: K42 L13 L86 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2007-03
New Economics Papers: this item is included in nep-com, nep-cul, nep-law, nep-mic and nep-reg
References: View references in EconPapers View complete reference list from CitEc
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2007-01

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