Al Roth posted recently about ships arming against pirates:

Why is this headline such an outlier? Cruise ship opens fire to beat back Somali pirates

One reason is that ship owners are concerned about the longer term effects of escalating the level of violence in their encounters with pirates. But, it turns out, there are some market design reasons too (emphasis added):

"There have been calls for commercial ships to be allowed to carry weapons to deter increasingly bold pirate gangs, who are armed with automatic rifles and often rocket-propelled grenades. But ships with arms onboard are not allowed to dock at non-military ports. To bypass this rule, some operators are hiring private security teams who board as the ship enters a risky stretch of water and leave once the danger has passed. Andrew Mwangura, head of the East African Seafarers' Assistance Programme in the Kenyan port of Mombasa, criticised the Melody for carrying guns. "There are a number of other methods which can be used to deter the pirates, having weapons on board is dangerous because it raises the stakes for the pirates," he said. "There is a far higher risk that a crew member of a merchant vessel, or a passenger, could die if the pirates feel they must fight harder to win the ship." The International Maritime Bureau said piracy incidents nearly doubled in the first quarter of 2009, almost all of them off Somalia. There were 18 attacks off the Somali coast in March alone. Pirates have made millions of dollars from seizing ships and taking crews hostage. A Greek ship was released on Saturday after a 1.3 million ransom was paid. But just hours earlier a German grain carrier was grabbed in the Gulf of Aden. "

A hidden militia onboard benefits all target ships as the pirates have more uncertainty about the the value of the cruise ship. Hiring a protective vessel to accompany a cruise ship will benefit only that one cruise. With the former solution, the industry should collectivize to offset the cost, since the cruise doesn't derive all the benefit.

Also, why haven't we seen a pirate switch sides and start selling protection?