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1. Digital piracy. Consider the market for a new videogame. There are two types of potential consumers - diehard fans and casual participants. There are 500 diehard fans and 700 potential casual players. The value to diehard consumers from purchasing the game is n- p if they purchase the game and zon if they pirate it, where n is the total number of users and p is the game's price. Casual players value a purchase at -n- p if they purchase the game and n if they pirate the game. 20 (a) Suppose first that piracy is not possible. What would be the optimal pricing strategy for producer of the videogame? Should they market to just the diehard fans or should they market towards all potential players? (b) If the software is not protected, so that piracy is an option for consumers, what is the firm's profit-maximizing price that they should charge? How many consumers will purchase the videogame legally? Has the producer had to change their pricing strategy? Explain. (c) Conclude with comments regarding whether or not the producer should take action to try and stop piracy, or if they should encourage it. Explain why! 1. Digital piracy. Consider the market for a new videogame. There are two types of potential consumers - diehard fans and casual participants. There are 500 diehard fans and 700 potential casual players. The value to diehard consumers from purchasing the game is n- p if they purchase the game and zon if they pirate it, where n is the total number of users and p is the game's price. Casual players value a purchase at -n- p if they purchase the game and n if they pirate the game. 20 (a) Suppose first that piracy is not possible. What would be the optimal pricing strategy for producer of the videogame? Should they market to just the diehard fans or should they market towards all potential players? (b) If the software is not protected, so that piracy is an option for consumers, what is the firm's profit-maximizing price that they should charge? How many consumers will purchase the videogame legally? Has the producer had to change their pricing strategy? Explain. (c) Conclude with comments regarding whether or not the producer should take action to try and stop piracy, or if they should encourage it. Explain why

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