Publication: Preventing commercial piracy when consumers are loss averse
Authors
Martínez Sánchez, Francisco
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Publisher
Elsevier
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DOI
https://doi.org/10.1016/j.infoecopol.2020.100896
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info:eu-repo/semantics/article
Description
© 2020. This document is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
This document is the submitted version of a published work that appeared in final form in
Information Economics and Policy
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 con- sumers 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 overes- timate 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 govern- ment 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.
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Citation
Information Economics and Policy Volume 53, December 2020, 100896
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Este ítem está sujeto a una licencia Creative Commons. http://creativecommons.org/licenses/by-nc-nd/4.0/