I’ve been having a little discussion about piracy with Tim O’Reilly over at his blog. O’Reilly argues that piracy (of digital goods) is on balance a good thing. I don’t disagree with that. As is the case with black and grey markets in general, digital piracy probably does provide some economic benefits, and it may even, as O’Reilly suggests, increase net revenues in a given market by increasing awareness of underpromoted goods (though I’d like to see hard evidence on that). But I think it’s critical to point out that piracy is only good so long as it’s bad. In other words, there have to be real costs (social, legal, technological) to taking the pirate route in order to prevent it from displacing too many sales. As soon as piracy becomes legitimate, the balance tips way over to the bad side. By lending legitimacy to piracy, O’Reilly may, unintentionally, end up promoting the ill effects of piracy and hence weakening his own argument.
A fascinating question is: What is the optimal cost for piracy? What’s the point at which, if you increase the penalties, you diminish beneficial awareness-building, and, if you decrease the penalties, you promote too much cannibalization of legitimate sales? I imagine economists have looked at this question for digital piracy. Anybody know of any studies?
Nick
If you type Digital Piracy at EconPapers, you will find 13 entries that cover the issue between them.
http://econpapers.repec.org/scripts/search.asp?ft=digital+piracy
Graham Hill
Profs Bin Gu and Vijay Mahajan of the McCombs School of Business at the University of Texas at Austin
wrote a study cited in this short article:
http://www.cioinsight.com/article2/0,1540,1940171,00.asp
My synposis: “An analysis of six years’ worth of sales and piracy data from 50 countries…showed that preventing people from stealing software in competitive and highly price-sensitive markets may make those markets less profitable for software vendors…The same logic holds true for other industries, including music and movies.”
Thanks, Graham. Thanks, Ed.
Chris Anderson discusses the question of what the right level of piracy might be here: http://qurl.com/pjrbh. There’s a Forrester study here (http://qurl.com/w5zlg, payment req’d) that discusses a method for thinking about what sort of piracy is bad and what sort is good – it concludes with an important distinction between “pirates” and “promoters”. And here’s Umair with some insights on how a strategy that superficially appears to assist the fight againt piracy actually increases piracy: http://qurl.com/7pwt1