A theoretical analysis of product versioning in the context of commercial piracy
The study develops a vertically differentiated duopoly model in the presence of commercial piracy with two groups of consumers, a business group and a home group, with the former having higher willingness to pay for the product. A firm producing an original information good sells it with...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Faculty of Economics, Belgrade
2018-01-01
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| Series: | Ekonomski Anali |
| Subjects: | |
| Online Access: | http://www.doiserbia.nb.rs/img/doi/0013-3264/2018/0013-32641819115B.pdf |
| Summary: | The study develops a vertically differentiated duopoly model in the presence
of commercial piracy with two groups of consumers, a business group and a
home group, with the former having higher willingness to pay for the
product. A firm producing an original information good sells it with
endogenously chosen product quality and acts as a price leader, and the
commercial pirate becomes the price follower. There exists a stringent
government policy of monitoring commercial piracy, which increases the
marginal cost of the pirate. We study and compare the two regimes of
no-versioning (selling a single quality product) and product versioning
(selling products with different price and quality combinations to different
consumer groups). In the versioning regime, depending upon demand and
government monitoring parameters, two equilibria are observed. Comparing the
original firm’s profit in each of these versioning cases suggests that
versioning may or may not be the original firm’s optimal strategy in the
presence of commercial piracy. This result is counterintuitive to existing
literature on product versioning in the context of enduser piracy. |
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| ISSN: | 0013-3264 1820-7375 |