On Jain’s digital piracy model: horizontal vs vertical product differentiation

We study how private intellectual property rights protection affects equilibrium prices in a duopoly competition between firms that offer product variety of distinct qualities (vertical differentiation) setup is closely related to put forward by Jain where the same (horizontal differentiation). Consumers may make choice buy legal version, use an illegal copy (if they want and can), or not at all. Using version violates thus punishable when discovered. Thus, both public (copyright) are available on scene.