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Digital pricing with piracy and variety seeking

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  • Ning, Yu
  • Xu, Su Xiu
  • Yan, Mian
  • Huang, George Q.

Abstract

This paper aims to explore behavioral digital pricing which incorporates realistic consumer behavior into firms' pricing and anti-piracy investment models. We consider a duopoly market with an original company and a pirated group selling digital products. The demand is sensitive to both parties' prices. We extend the traditional Hotelling model by taking into account the effects of externality on both parties. We then propose three types of price competition games: (I) Cournot model, (II) Stackelberg model with the original company as the leader, and (III) the Stackelberg model with the pirated group as the leader. In model II, if the value of externality effects is lower than a threshold, the original company will benefit from the government anti-piracy policy that tolerates some piracy. Finally, we investigate the behavior of consumer variety seeking in a two-period Cournot model. With the presence of variety seeking, both the original and pirated parties will adopt higher prices in the first period. Surprisingly, variety seeking brings higher profits to both parties in two periods.

Suggested Citation

  • Ning, Yu & Xu, Su Xiu & Yan, Mian & Huang, George Q., 2018. "Digital pricing with piracy and variety seeking," International Journal of Production Economics, Elsevier, vol. 206(C), pages 184-195.
    • Handle: RePEc:eee:proeco:v:206:y:2018:i:c:p:184-195
    DOI: 10.1016/j.ijpe.2018.09.026
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    References listed on IDEAS

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    Cited by:

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    3. Liyang Xiong & Honglei Yu & Zhanqing Wang, 2021. "Competition in a Variety Seeking Market With Brand Name Awareness," SAGE Open, , vol. 11(2), pages 21582440211, April.
    4. Adhikari, Arnab & Sharma, Megha & Basu, Sumanta & Jha, Ashish Kumar, 2022. "Uniform or spatially differentiated? Pricing Strategies for Information Goods under simultaneous and sequential decision-making in multi-market context," Journal of Retailing and Consumer Services, Elsevier, vol. 64(C).
    5. Yu Ning & Su Xiu Xu & George Q. Huang & Xudong Lin, 2021. "Optimal digital product auctions with unlimited supply and rebidding behavior," Annals of Operations Research, Springer, vol. 307(1), pages 399-416, December.
    6. Peng, Shuxia & Li, Bo & Wu, Shuang, 2023. "Presence of piracy and legal protection: Decisions in the digital goods market under different contracts," European Journal of Operational Research, Elsevier, vol. 309(2), pages 578-596.
    7. Ning, Yu & Yan, Mian & Xu, Su Xiu & Li, Yina & Li, Lixu, 2021. "Shared parking acceptance under perceived network externality and risks: Theory and evidence," Transportation Research Part A: Policy and Practice, Elsevier, vol. 150(C), pages 1-15.

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