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Abstract

This note summarizes and updates our previous survey of the economics of digital piracy (Belleflamme and Peitz, 2012).
2014/19
Digital piracy: an update
Paul Belleflamme and Martin Peitz
Center for Operations Research
and Econometrics
Voie du Roman Pays, 34
B-1348 Louvain-la-Neuve
Belgium
http://www.uclouvain.be/core
DISCUSSION PAPER
CORE DISCUSSION PAPER
2014/19
Digital piracy: an update*
Paul BELLEFLAMME 1 and Martin PEITZ 2
April 2014
Abstract
This note summarizes and updates our previous survey of the economics of digital piracy (Belleflamme
and Peitz, 2012).
Keywords: information good, piracy, copyright, IP protection, internet, peer-to-peer, software, music.
JEL classification: L11, L82, L86.
1 Université catholique de Louvain, CORE and Louvain School of Management, B-1348 Louvain-la-Neuve,
Belgium. E-mail: paul.belleflamme@uclouvain.be
2 Department of Economics, University of Mannheim, D-68131 Mannheim, Germany; CEPR, CESifo, ENCORE
and ZEW. E-mail: martin.peitz@googlemail.com
* To be published in Backhaus, J. 'ed.), Encyclopedia of Law and Economics. Springer (in print). This version:
January 2014.
Introduction
The objective of this note is to provide a comprehensive and up-to-date
overview of digital piracy. Although we put the emphasis on the economic
analysis, we also briefly present the legal context and its recent evolution. As
digital piracy consists in infringing intellectual property laws, it is important
to start by understanding the rationale of such laws. That allows us to
define more precisely what is meant by digital piracy. We can then move
to the economic analysis of piracy. We start with the basic analysis, which
explains why piracy is likely to decrease the profits of the producers of
digital products; we also examine how the producers have reacted to digital
piracy when it started to grow. We review next more recent contributions
that point at possible channels through which piracy could improve the
profitability of digital products. These channels have inspired new business
models for the distribution of digital products, which we describe in the last
part of the essay. Throughout the essay, we report the results of some of
the most recent empirical studies, so as to quantify the impacts of digital
piracy.
The IP protection of information products
Information products (such as music, movies, books, and software) are often
characterized as being hardly excludable, in the sense that their creators face
a hard time excluding other persons, especially non-payers, from consum-
ing these products. This feature may undermine the incentives to create,
because of the difficulty in appropriating the revenues of the creation. The
production of information products may then be insufficient compared to
what society would deem as optimal. One solution to this so-called “under-
production” problem is to make intellectual creations excludable by legal
means. This is the objective pursued by intellectual property (IP) laws,
which most countries have adopted. IP refers to the legal rights that result
from intellectual activity in the industrial, scientific, literary and artistic
fields. IP laws generally distinguish among four separate IP regimes, which
are targeted at different subject matters: information products (and more
generally literary, musical, choreographic, dramatic and artistic works) are
protected by copyrights; the three other regimes (patents, trade secrets and
trademarks) aim at protecting industrial property (such as inventions, pro-
cesses, machines, brand names, industrial designs).
2
It is important to note, from an economic perspective, that IP laws al-
leviate the “underproduction” problem at the cost of exacerbating an “un-
derutilization” problem. To understand this second problem in the context
of information products, we need to refer to another characteristic of infor-
mation products, namely their nonrivalness, which refers to the property
that their consumption by one person does not prevent their consumption
by another person (for instance, the fact that some person listens to the
performance of an artist does not reduce the possibility for anyone else in
the audience to listen to the same performance). A consequence of this non-
rivalness is that the marginal cost of production of information products is
zero (that is, taking the artist’s viewpoint in the previous example, once the
show has started, it costs nothing to have one extra spectator viewing it).
From the point of view of static efficiency, the price of information goods
should therefore be equal to zero. However, because IP laws endow them
with some market power, the creators of information products are able to
set a positive price, which reduces social welfare by preventing those con-
sumers with a low, but positive, valuation of the information products from
consuming them.
In other words, IP laws aim at striking the balance between providing
incentives to create and innovate, while promoting the diffusion and use of
the results of creation and innovation. To do so, IP rights are granted only
for a limited period of time and for a limited scope. In particular, copyright
protection usually lasts for a number of years (currently, 70 in both the
European Union and the United States) after the creator’s death; in terms
of scope, copyrights protect only the expression but not the underlying ideas.
Defining digital piracy
IP laws are effective only if they are properly enforced and respected. Yet, as
far as information products are concerned, one observes a large-scale viola-
tion of the laws protecting them, a phenomenon known as “piracy”. What
is striking is that the illegal reproduction and distribution of copyrighted
works is not only the act of criminal organizations (so-called “commercial
piracy”) but also the act of the consumers themselves (so-called “end-user
piracy”).1
1We do not review here factors that influence the piracy decision; one can indeed wonder
what motivates such large-scale violation of IP laws by individuals who are normally law-
3
Commercial piracy does not need much analysis, as the motivation is
easily understood: criminal organizations are simply attracted by the high
profit margins that the large-scale reproduction and distribution of copy-
righted products generates. On the other hand, end-user piracy raises a
number of issues that the fast penetration of the Internet and the digitiza-
tion of information products have made much more pressing. Digital tech-
nologies have indeed drastically reduced the cost of making and distributing
illegal copies, while increasing their quality; thereby, they have deeply mod-
ified the interaction between end users, copyright holders, and technology
companies. End-user piracy in the digital age, or for short digital piracy, is
thus a major phenomenon that requires a thorough analysis.
The basic economics analysis: digital piracy decreases profits
The main consequence of digital piracy is that it seriously limits copyright
owners in their ability to control how information products get to consumers.
As a result, the availability of digital copies is likely to reduce the copyright
owner’s profits. This is the prediction that can be drawn from the basic
theoretical modeling of piracy (see, for instance, Novos and Waldman, 1984,
Johnson, 1985, and the references in Belleflamme and Peitz, 2012). These
models simplify the analysis by focusing on the market for a digital product
supplied by a single producer. One can justify this assumption by arguing
that digital products within a given category are highly differentiated in
the eyes of the consumers; the demand for any product is therefore hardly
affected by the prices of other products. Even though the copyright owner
acts as a monopoly, she faces nevertheless the competition exerted by the
availability of (illegal) digital copies. Copies are seen as imperfect substi-
tutes for the original digital product, insofar as their quality is generally
lower than the quality of original products. In particular, the quality of
copies primarily depends on technological and legal factors, which can be
affected by public authorities (through the definition and the enforcement
of IP protection) and/or by the copyright owner herself (through technical
protective measures). In this setting, it is possible to analyze the copyright
owner’s decisions about the pricing and the technical protection of original
products, as well as public policy regarding IP laws.
abiding citizens; for a review of the literature on this topic, see Novos and Waldman
(2013).
4
The main results of these analyses can be summarized as follows. First,
because consumers with a low cost of copying or with a low willingness to
pay for quality prefer copies to original products, the copyright owner is
forced to charge a lower price (than in a world where digital piracy would
not exist). That clearly decreases the copyright owner’s profits but increases
the surplus of the consumers of original products; moreover, a number of
consumers who were not willing to purchase the original product at the
monopoly price get now some utility from the pirated copies. As the increase
in consumer surplus outweighs the profit reduction, digital piracy results in
an improvement of welfare from a static efficiency point of view (like any
erosion of market power does). However, the lower profits may reduce the
incentives of copyright owners to improve the quality of existing products
or to introduce new products on the market; this is detrimental to welfare
from a dynamic perspective. Moreover, total welfare may decrease because
of a number of avoidable costs that digital piracy entails (e.g., the costs
for producers to implement technical protective measures, or the costs for
public authorities to enforce copyrights).
Looking at the profits of copyright owners, it is an undisputed fact that
they started to decrease when end-user piracy started to grow (i.e., around
1999 with the launch of Napster, a peer-to-peer file-sharing service). This
was particularly acute in the music industry where physical music sales
(that is to say, CDs) dropped significantly. Numerous empirical studies
(for a survey, see Waldfogel, 2012a) have tried to estimate the extent to
which this decrease in sales could be attributed to digital piracy. These
studies converged on the conclusion, now widely accepted, that digital piracy
has ”displaced” physical sales (i.e., legal purchases were substituted for,
mainly, illegal downloads). However, it is also established that the estimated
”displacement rate” is slightly above zero and nowhere near unity, reflecting
the observation that the vast majority of goods that were illegally consumed
would not have been purchased in the absence of piracy (contrary to what
the recording industry would have liked the general public to believe by
counting any download as a lost sale).
Very little empirical work has been devoted to the long-term effects of
piracy (i.e., to dynamic efficiency considerations). One notable exception is
Waldfogel (2012b), who tries to estimate the extent to which digital piracy
has affected the incentives to bring forth a steady stream of valuable new
5
products. To address this issue, he uses three different methods to assess
the quality of new recorded music since Napster. The three resulting indices
of music quality show no evidence of a reduction in the quality of music
released since 1999; two indices even suggest an increase. One explanation
could be that the digital technologies that have made piracy easier have also
reduced the costs of bringing creative works to market, and that the latter
effect is at least as important as the former.
Reactions of copyright owners
In the face of digital piracy and of the reduction of sales, the first reaction of
copyright owners was to try and prevent the existing business models from
crashing down. As these models were relying on controlled distribution
and broadcast channels, the main strategies consisted (i) in pursuing more
heavily copyright infringers, (ii) in using digital technologies as protective
measures, and (iii) in lobbying for more restrictive IP laws.
The music industry started the fight against illegal downloading. In
2001, the Recording Industry Association of America (RIAA) obtained the
closure of Napster but the victory proved short-lived as a number of other
file-sharing systems (such as Kazaa, Limewire, and Morpheus) quickly re-
placed Naspter. The industry started then a campaign of litigation against
individual P2P file sharers: between 2003 and 2008, legal proceedings were
opened against about 35,000 people. The software and the movie industries
also engaged in similar legal battles.
A far as technical measures are concerned, a common tactic was to pro-
tect digital products through so-called digital rights management (DRM)
systems, which inhibit uses of digital content not desired or intended by the
content provider. DRM systems were meant to fight digital piracy but also,
more generally, to manage how digital products can be used. Well-known
examples of DRM systems are the Content Scrambling System (CSS) em-
ployed on film DVDs since 1996, so-called ‘copy-proof’ CDs introduced by
Bertelsman in 2002 (which could not be played on all CD players and were
later abandoned), and the FairPlay system used by Apple on its iTunes Mu-
sic Store. Such systems were gradually abandoned in the music industry
(but are still used in other industries, such as in the case of ebooks).
Finally, lobbying efforts were met with success as stronger copyright laws
were passed in a number of countries. In the U.S., in 1998, the Copyright
6
Term Extension Act extended the duration of existing copyrights by 20
years, while the Digital Millenium Copyright Act reinforced copyright pro-
tection by making it a crime to circumvent the technological measures that
control access to copyrighted work. In Europe, a number of EU directives
led EU member states to harmonize their national copyright laws in the first
half of the 1990s; also, the European Union Copyright Directive (EUCD)
of 2001 required member states to enact provisions preventing the circum-
vention of technical protection measures. In the late 2000s, some countries
(led by France and the UK) passed so-called “three-strikes anti-piracy laws”,
which authorize the suspension of Internet access to pirates who ignored two
warnings to quit. Finally, actions were also directly taken against platforms
that were hosting and sharing illegal content (the most famous cases being
the shutdowns of Napster in 2001, of Megaupload in 2012 and of the Pirate
Bay in 2013).
In sum, the first reaction of copyright owners in the face of digital piracy
was to enforce and reinforce both the legal and technical excludability of
their products. However, these measures turned out to be of little effective-
ness and sometimes even counterproductive. On the one hand, technical
measures were not only quickly circumvented but they also irritated legiti-
mate consumers, thereby decreasing their willingness to pay for copyrighted
products. Zhang (2013) gives an indirect proof by showing that the deci-
sion by various labels to remove DRM from their entire catalogue of music
increased digital music sales by 10%. To establish this point, she compares
sales of similar albums with and without DRM before and after DRM re-
moval; her sample includes a large selection of hits and niche albums, from
all four major record labels and from multiple genres.
On the other hand, a number of empirical studies have tried to assess
the effectiveness of anti-piracy interventions by governments on the sales
of digital products. The results obtained so far are rather mixed. For in-
stance, two papers examine the impacts of French “three-strikes anti-piracy
law” (known as HADOPI law) introduced in 2009 and reach opposite con-
clusions: Danaher et al. (2014) find that the law caused a 20-25% increase
in music sales in France, whereas Arnold et al. (2014) conclude that the
law was ineffective not only in deterring individuals from engaging in digital
piracy, but also in reducing the intensity of illegal activity of those who did
engage in piracy. Similarly, different approaches to estimate the impacts
7
of the shutdown of Megaupload in 2012 lead to contrasting conclusions.
Peukert et al. (2013) compare box office revenues before and after the shut-
down for two sets of movies with matching characteristics but presenting
one main difference: the first set could be accessed illegally through Megau-
pload, while the second set could not. Using a quasi difference-in-differences
approach, they establish that the shutdown of Megaupload did not have any
positive impact on box office revenues across all movies in the sample. In
contrast, Danaher and Smith (2013) exploit the fact that there exists cul-
tural variation across countries in the degree to which Megaupload was used
as a channel for piracy. They show that digital movie revenues for two stu-
dios were 6.5-8.5% higher over the 18 weeks following the shutdown (across
12 countries) than they would have been if Megaupload had continued to
operate.
Even if further empirical research is called for to refine the analysis of
the effectiveness of anti-piracy measures, some of the existing results suggest
that digital piracy may also have some positive impacts on the copyright
owners’ profits, which may balance the negative ‘business-stealing’ effect.
We therefore turn to a second set of economic models that present piracy
under a more favorable angle.
Further developments: digital piracy may increase profits
A number of theoretical studies (see Peitz and Waelbroeck, 2006, and the
references in Belleflamme and Peitz, 2012) have demonstrated the positive
effects that piracy may have on the profits of copyright owners. Three
mechanisms have been identified. First, illegal copies of a digital product can
play a sampling role by attracting consumers and driving them to purchase
a legitimate copy later. This argument is based on the observation that
digital products are complex ‘experience goods’; that is, consumers do not
know the exact value that they attach to particular digital products before
consuming them. Buying a legitimate copy may thus appear as risky, which
inevitably reduces demand. However, if an illegal copy can be accessed free
of charge, consumers may learn their valuation of the product and if the
latter is large, they may want to purchase the legitimate product (which is
often, as argued above, of a higher perceived quality).
The empirical results of Zhang (2013) are consistent with this theory. As
we noted above, her analysis shows that the removal of DRM had a positive
8
impact on digital music sales; yet, this impact was much more pronounced
for niche than for hit albums, which suggests that more flexible sharing
increased sales because it lowered search costs (which are arguably larger
for lower-selling than for top-selling albums).
The second mechanism originates in the fact that many digital products
generate network effects; that is, the attraction of the product increases with
the number of consumers of that product. This is so with software (the wider
is the community of users, the easier it is to exchange files, and the larger
is the supply of complementary products) or with cultural products (whose
popularity increases with word-of-mouth). As it is the cumulated number
of consumed copies that matter and not whether these copies are legitimate
or not, digital piracy contributes to increase the willingness to pay for legit-
imate copies. An anecdotal evidence of the importance of this mechanism
can be found in the reaction of one of the directors of the series ”Game of
Thrones” (produced by the American premium cable network HB0) when
interviewed about the huge illegal downloading of the first episode of the
third season (estimated to over one million times in the space of 24 hours);
he basically stated that the series benefits from piracy because it feeds the
”cultural buzz” that allows this kind of program to ”survive”.2
Finally, the third mechanism, called indirect appropriation, resembles
the second by invoking the fact that piracy can increase the demand for
goods that are complementary to the pirated content; the producer is then
able to capture indirectly the value that consumers attach to the pirated
good. This goes, for example, for increasing ticket sales for the concert of an
artist, whose popularity may be partly due to a large base of fans consuming
pirated copies of this artist’s songs. Mortimer et al. (2012) provide some
empirical evidence along these lines; combining detailed album sales data
with concert data for a sample of 1806 artists on the period 1999 to 2004,
they find that digital piracy reduced sales but increased live performance
revenues for small artists (the impact for large, well-known artists being
negligible).
2See www.huffingtonpost.com/2013/02/26/game-of-thrones-download\_n\
_2765488.html?utm\_hp\_ref=entertainment\&ir=Entertainment (last visited, Jan-
uary 2014).
9
Perspectives
The presence of these potential positive impacts of piracy and the inabil-
ity to preserve the existing business models drove the content industries to
experiment with new solutions. Because it had been the first to be hit by
digital piracy, the music industry also took the lead in terms of innova-
tive business models. The first answer to falling CD sales was to move the
distribution of music online. At the forefront was the iTunes Music Store
operated by Apple, which opened in 2003. These legal online channels for
digital music allowed consumers not only to find and download music as
easily as via illegal channels, but also to start buying individual tracks in-
stead of being forced to buy albums. Koh, Murthi and Raghunathan (2013)
suggest that the latter possibility induced a new way of consuming music,
which contributed to weaken the negative effect of online music piracy on
physical music sales; according to their empirical assessment, it is the legal
sales of online music and not digital piracy that displaced physical music
sales after 2003.
In the same vein, Aguiar and Martens (2013) conclude that the online
legal sales of digital music (through online stores such as iTunes or via
streaming services such as Spotify) do not seem to be displaced by illegal
downloading; the opposite may even occur. To establish this result, they
analyze the behavior of digital music consumers on the Internet. They use
direct observations of the online behavior of more than 16,000 Europeans.
The main result of their analysis is that illegal downloading has no effect on
legal consumption. At best, this effect is positive: a 10% increase in clicks
on illegal download websites leads to an increase of 0.2% in clicks on legal
purchase websites. Piracy does not induce any displacement of the legal
music purchase in digital format; it might even slightly boost sales.3
New business models in the music industry also offer market solutions
to increase revenues from the segment of consumers with a low willingness
to pay for music and with, therefore, a high disposition to digital piracy. As
3People in the sample have willingly accepted to be observed. This introduces two
potential biases: on the one hand, it is quite likely that the ”heavy downloaders” have
refused to be part of the sample; on the other hand, individuals in the sample may have
changed their behavior knowing that they were observed. We must also keep in mind that
in the relevant time period, while increasing, online music sales accounted for only a small
fraction of the overall revenues of the music industry and that physical sales have been
shown to suffer from piracy (5% in 2010 and 8% in 2011 according to IFPI).
10
Waelbroeck (2013) describes it, the streaming services (such as Spotify or
Deezer) are based on a ‘freemium’ model, which combines free and premium
(i.e., paying) services. The objective is to attract users with the free offering
and, later, ‘convert’ them to paying subscribers. This objective can be
reached through different ways: the premium offering can include additional
‘mobility’ (e.g., the possibility to access playlists on various devices, such as
a computer, a tablet or a smartphone), better sound quality, a wider library
of titles, or the removal of ads.
Markets for information products are undergoing major changes due
to technological innovations, which triggered digital piracy and, partly as
a response, new business models. As exemplified above, in this changing
landscape, some research suggests that consumer behavior exhibits several
interesting features. Whether these features are stable over time and space
is an interesting area for future research. Such an understanding is nec-
essary to evaluate the impact of digital piracy on markets for information
products and to develop successful new business models. It is also necessary
to propose appropriate public policy responses.
References
[1] Aguiar, L. and Martens, B. (2013). Digital Music Consumption on the Inter-
net: Evidence from Clickstream Data. Institute for Prospective Technological
Studies Digital Economy Working Paper 2013/04. European Commission Joint
Research Centre.
[2] Arnold, M. A., Darmon, E., Dejean, S. and P´enard, T. (2014). Graduated
Response Policy and the Behavior of Digital Pirates: Evidence from the French
Three-Strike (Hadopi) Law. Mimeo.
[3] Belleflamme, P. and Peitz, M. (2012). Digital Piracy: Theory. In Peitz, M. and
Waldfogel, J. (Eds), The Oxford Handbook of the Digital Economy, Oxford
University Press.
[4] Danaher, B. and Smith, M.D. (2013). Gone in 60 Seconds: The Impact of the
Megaupload Shutdown on Movie Sales. Mimeo.
[5] Danaher, B., Smith, M.D., Telang, R. and Chen, S. (2014). The Effect of
Graduated Response Anti- Piracy Laws on Music Sales: Evidence from an
Event Study in France. Journal of Industrial Economics, forthcoming.
11
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[7] Koh, B., Murthi, B.P.S. and Raghunathan, S. (2013). Shifting Demand: On-
line Music Piracy, Physical Music Sales, and Digital Music Sales. Journal of
Organizational Computing and Electronic Commerce. Accepted.
[8] Mortimer, J.H., Nosko, C. and Sorenson, A. (2012). Supply Responses to
Digital Distribution: Recorded Music and Live Performances. Information
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12
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2014/18 Koen DECANCQ, Marc FLEURBAEY and Erik SCHOKKAERT. Inequality, income, and
well-being.
2014/19 Paul BELLEFLAMME and Martin PEITZ. Digital piracy: an update.
Books
V. GINSBURGH and S. WEBER (2011), How many languages make sense? The economics of linguistic
diversity. Princeton University Press.
I. THOMAS, D. VANNESTE and X. QUERRIAU (2011), Atlas de Belgique Tome 4 Habitat. Academia
Press.
W. GAERTNER and E. SCHOKKAERT (2012), Empirical social choice. Cambridge University Press.
L. BAUWENS, Ch. HAFNER and S. LAURENT (2012), Handbook of volatility models and their
applications. Wiley.
J-C. PRAGER and J. THISSE (2012), Economic geography and the unequal development of regions.
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J. HINDRIKS (2012), Gestion publique. De Boeck.
M. FUJITA and J.F. THISSE (2013), Economics of agglomeration: cities, industrial location, and
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J. HINDRIKS and G.D. MYLES (2013). Intermediate public economics. (2nd edition). MIT Press.
J. HINDRIKS, G.D. MYLES and N. HASHIMZADE (2013). Solutions manual to accompany intermediate
public economics. (2nd edition). MIT Press.
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R. AMIR (2002), Supermodularity and complementarity in economics.
R. WEISMANTEL (2006), Lectures on mixed nonlinear programming.
A. SHAPIRO (2010), Stochastic programming: modeling and theory.
... On the supply side, digitization reduced the fixed cost of content creation (Waldfogel 2012) as well as the marginal costs of both reproduction and distribution (Varian 2005). On the demand side, digitization provided end users with easy access to digital piracy on a global scale (Belleflamme et al. 2014, Danaher et al. 2014a, Waldfogel 2012. For example, according to Price (2013), in January 2013, 26% of the Internet users in North America, Europe, and Asia-Pacific-that is, 327 million unique users-sought copyrighted content from illegal online sources, a 9.9% increase from 2011. ...
... A number of theoretical models show that piracy may hurt firm profit but increase short-term social welfare (Peitz and Waelbroeck 2006). Researchers have also looked at strategies that may reduce piracy, such as litigation against digital theft, enactment of more restrictive intellectual property laws (Boag 2004, Groennings 2005, Belleflamme et al. 2014, and development of technologies that make copying more difficult (Sinha et al. 2010). The empirical research finds that these approaches generally reduce piracy and increase sales through legal channels (Danaher and Smith 2014;Danaher et al. 2014b; Danaher et al. 2015a, b). ...
... 64, no. 12, pp. 5610-5630, © 2017 Less effort has been put into analyzing how new legal channels to distribute media affect piracy (Belleflamme et al. 2014, Waldfogel 2012, Danaher et al. 2010. However, such research is important given the number of new technologies and business models developed to distribute digital content (e.g., iTunes selling songs individually as opposed to full albums Waldfogel 2010). ...
Article
We partner with a major multinational telecommunications provider to analyze the effect of subscription video-on-demand (SVoD) services on digital piracy. For a period of 45 consecutive days, a group of randomly selected households who used BitTorrent in the past were gifted with a bundle of TV channels with movies and TV shows that could be streamed as in SVoD. We find that, on average, households that received the gift increased overall TV consumption by 4.6% and reduced Internet downloads and uploads by 4.2% and 4.5%, respectively. However, and also on average, treated households did not change their likelihood of using BitTorrent during the experiment. Our findings are heterogeneous across households and are mediated by the fit between the preferences of households in our sample for movies and the content available as part of the gifted channels. Households with preferences aligned with the gifted content reduced their probability of using BitTorrent during the experiment by 18% and decreased their amount of upload traffic by 45%. We also show using simulation that the size of the SVoD catalog and licensing window restrictions limit significantly the ability of content providers to match SVoD offerings to the preferences of BitTorrent users. Finally, we estimate that households in our sample are willing to pay at most $3.25 USD per month to access a SVoD catalog as large as Netflix's in the United States. Together, our results show that, as a stand-alone strategy, using legal SVoD to curtail piracy will require, at the minimum, offering content much earlier and at much lower prices than those currently offered in the marketplace, changes that are likely to reduce industry revenue and that may damage overall incentives to produce new content while, at the same time, curbing only a small share of piracy.
... Prior research on piracy has seen rigorous academic investigation, with a focal debate on whether illegal copies help or hurt legal sales. A tension exists in piracy research, as some studies have shown negative effects of illegal copies on legal demand (Hui and Png 2003;Bae and Choi 2006;Yoon 2007;Liebowitz 2008;Hong 2013;Waldfogel 2012;Belleflamme and Peitz 2014), with varying estimates on the sales displacement effect (Aguiar and Waldfogel 2018;Li, Liao, and Xie 2019;Yue 2019). Yet, other piracy research has found positive effects of piracy on legal demand (Fader 2000;Jain 2008;Mortimer, Nosko, and Sorensen 2012;Lu, Wang, and Bendle 2020). ...
... The Zimbabwe Intellectual Property Officer noted that social media in Zimbabwe has been a harbour for file sharing: uploading and downloading of music, movies, videos, photographs, books, text, or any other data that is shared between users of the internet, commonly referred to as "peers" (Belleflamme, 2014).Currently in Zimbabwe, the respondent stated that, peer-to-peer ("P2P") filesharing platforms include WhatsApp, Facebook, MiniNova, FrostWire, uTorrent, and The Pirate Bay, and the number of such platforms and networks are vast and they are constantly growing. They are free and, with some exceptions, they are available worldwide. ...
Article
Full-text available
A study focusing on the utilization of Technological Protection Measures (TPMs) in mitigating Copyright Infringement on Social Media. The Copyright sector in Zimbabwe has the potential of contributing more than 65% GDP for the country’s economy. This sector could possibly generate vast employment and business growth opportunities towards the country’s development. Therefore, it is essential that the Copyright sector is guarded jealously especially in light of the use of protected creative works on social media. This will improve the sector’s competency on the market. The unfortunate side, however, is that Technological Protection Measures (TPMs) are not fully utilized in the Copyright Protection system on Social Media in developing countries specifically Zimbabwe. The study viewed all aspects which possibly contribute to limited protection of copyright works on social media in Africa particularly Zimbabwe, narrowing down to the analysis of the existing legal system regime on copyright. Moreover, the study examined the role of the Zimbabwe Intellectual Property Office (ZIPO), Collective Management Organizations, Online Distributors and Internet Service Providers, in assisting and influencing the use TPMs on social media to protect copyright works. The study was carried out at the University of Zimbabwe, Harare and Africa University, Mutare in Zimbabwe. Key informants from Zimbabwe Intellectual Property Office, ZimCopy, Zimbabwe Music Rights Association, Online distributors and Internet Service Providers were interviewed in the survey. The data was obtained through unstructured questionnaires and key informant interviews.
... Cesareo (2015) mengemukakan bahwa pembajakan juga bisa menghasilkan mekanisme "apropriasi tidak langsung" dimana produsen secara tidak langsung dapat menangkap nilai (value) dari konten bajakan melalui peningkatan permintaan barang komplementer. Salah satunya, penjualan tiket untuk konser seorang artis bisa meningkat jika popularitasnya telah meningkat, berkat konsumsi versi bajakan dari lagu-lagunya (Belleflamme and Peitz, 2014). Brown (2014) mengatakan bahwa popularitas pertunjukan langsung musik atau konser tumbuh seiring kegiatan mendownload musik illegal. ...
Conference Paper
Full-text available
This study aims to analyze the direct and indirect effect of Subjective Norms and Attitude toward Concert Ticket Buying Decision via The Intention to Download Illegal Music and The Intention to Buy Legal Music as Intervening Variables. The population of this study is the undergraduate management student at Faculty of Economics and Business, University of Sumatera Utara 2016/2017 with the total sample is 100 students. The method of analysis is PLS-SEM (Partial Least Squares-Structural Equation Modeling) method by using SmartPLS 3.0 software.The results of this study show that Subjective Norms (X1) directly and significantly influences the Concert Ticket Buying Decision (Y). Subjective Norms (X1) significantly influences The Intention to Download Illegal Music (Z1). However, Subjective Norms (X1) does not significantly influence The Intention to Buy Legal Music (Z2). Attitude (X2) directly and significantly influences the Concert Ticket Buying Decision (Y). Attitude (X2) significantly influences The Intention to Buy Legal Music (Z2). However, Attitude (X2) does not significantly influence The Intention to Download Illegal Music (Z1). The Intention to Download Illegal Music (Z1) does not significantly influence the Concert Ticket Buying Decision (Y). The Intention to Buy Legal Music (Z2) does not significantly influence the Concert Ticket Buying Decision (Y). Subjective Norms (X1) does not indirectly and significantly influences the Concert Ticket Buying Decision (Y) via The Intention to Download Illegal Music (Z1). Subjective Norms (X1) does not indirectly and significantly influences the Concert Ticket Buying Decision (Y) via The Intention to Buy Legal Music (Z2). Attitude (X2) does not indirectly and significantly influences the Concert Ticket Buying Decision (Y) via The Intention to Download Illegal Music (Z1). Attitude (X2) does not indirectly and significantly influences the Concert Ticket Buying Decision (Y) via The Intention to Buy Legal Music (Z2). Keywords: Subjective Norms, Attitude, Behavioral Intention, Buying Intention, Buying Decision.
... Free downloads of music could be used as a "free sample". The merit of "free samples" would invite users to listen to music in which they would otherwise would not be interested, which could lead to legitimate sales (Belleflamme & Peitz, 2014). Among legitimate sales, "revalorisation of performance" (Leyshon, 2003) has received the most attention, predicated on the idea that free music would bring back the very essence of the way music was valued: face-to-face intimacy and uniqueness that took place only at a certain time and in a certain space (Power & Hallencreutz, 2002;Vaidhyanathan, 2001). ...
... Prior research has also underlined the almost 'positive' effects of file sharing such as consumers' increased willingness to pay for original content after the "anticipation effect" generated by online piracy; and the fact that authors' creativity has not been undermined given that the amount of music, books and movies has strongly increased in the last decade (Oberolzer-Gee and Strumpf, 2010). Finally, piracy could also generate an 'indirect appropriation' mechanism where the producer can indirectly capture the value of the pirated content through the increase in the demand for complementary goods: for example, ticket sales for a concert of an artist could increase if his popularity has risen, thanks also to the consumption of pirated versions of his songs (Belleflamme and Peitz, 2014). ...
Article
Full-text available
Purpose: This paper analyzes Italian consumers’ music habits, in terms of online piracy behaviors and their interest toward subscription-based music services (SBMS), i.e. services that for a small monthly fee give users legal access to vast libraries across multiple devices. The objective is to try and profile a piracy-prone consumer and explore if SBMS can be a viable alternative to online music piracy in Italy, where the general piracy rate is very high. Methodology: The study is based on an empirical quantitative analysis through the collection of 505 questionnaires completed by Italian consumers. Findings: The paper highlights how Italian consumers reflect the ‘attitude-behavior gap’ in music consumption, as they perceive online music piracy as ethically wrong, yet they still show low preference for the legal, reasonably priced choice (such as SBMS). Younger, male, lower education, students have the highest propensity towards online piracy. In addition, consumers’ awareness, familiarity and interest with subscription-based music services are still very low. Research limitations: The limitations of the paper are linked mainly to the adapted scales, to the omission of alternative determinants of attitude towards piracy, to the composition of the sample and for analyzing just two subscription-based music services (Napster and Spotify). Managerial implications: The results call for greater efforts by music industry actors and public institutions to educate Italian consumers about the consequences of their online piracy behavior and the possible solutions offered by SBMS. Originality/value: This paper is the first to focus on Italian consumers’ music habits, their attitude and behavior towards online piracy and their interest toward subscription-based music services as a viable alternative.
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Full-text available
Contrary to a popular belief of lawyers having the most strict perception of law, law professionals actually strongly skew toward more favorable views of digital sharing. According to our qualitative study, relying on in‐depth interviews with 50 Harvard lawyers, digital piracy is quite acceptable. It is considered fair, especially among friends and for noncommercial purposes. We argue that this not only can indicate that the existing law is becoming outdated because of its inability to be enforced, but also that ethically it is not corresponding to what is considered fair, good service, or being societally beneficial. The common perception of relying on a fixed price for digital content is eroding. We show that on the verges of business, society, and law, there is a potential for the new paradigm of digital commons to emerge.
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This paper develops a theoretical framework to discuss the positive role of imitative works where creators often have private information about their creative abilities and may need outside investment. Within this framework, we consider the impact of three types of copyright protection during the different stages: the production, distribution, and consumption of creative works. Different types of enforcement can discourage imitation (production-side enforcement), limit distribution (supply-side enforcement), and restrict consumption (demand-side enforcement) of unauthorized copies of creative works. The last two types of infringement are called end-user piracy since these involve end-users, who actively search and illegally access creative works. The main results show that substitutability exists between copyright protection against end-user piracy since both types of enforcement increase the creator’s incentive with a higher return. However, it cannot solve the inefficient investment problem due to information asymmetry. There exists complementarity between copyright protection against end-user piracy and imitation. When weak protection against end-user piracy yields the overproduction of creative works, a high level of protection against imitation can minimize the related inefficiencies. However, when end-user piracy enforcement increases and brings underproduction, imitative works can benefit society.
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Rising incidences of piracy in the entertainment/creative industry in Nigeria are increasing concerns about the sustainability of the industry and the livelihood of content creators. The United Nations’ Sustainable Development Goal 1 (SDG 1) aims to end poverty at all levels and in all places by the year 2030, but this goal faces a challenge if personal and corporate investments of moviemakers are lost to piracy. Studies have shown that profit-seeking pirates are not the only ones who do damage to the industry, but end-users also share unauthorised digital contents. The purpose of this research is to investigate the connection between gender and willingness of the audience, who in this case are undergraduate students of a government-owned university in Lagos, to see piracy curbed. Multistage sampling was used to cluster the population into faculties and departments. A sample of 199 was selected purposively based on the respondents’ knowledge of digital piracy, and a 20-item questionnaire was used for data gathering. Using t-test to analyse the data, the result shows that there was no significant difference between the views of female and male respondents. Cohen’s d analysis also indicates that there is a negligible effect size. While respondents participated in digital file-sharing, they did not consider their stoppage of the habit relevant to curbing piracy in Nigeria. Hence, the study recommends proper enlightenment of end-users to understand their significant role in digital piracy.
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In this paper, the authors analyze the differences in piracy rates from one country to another. Like previous papers on the topic, they find that more developed countries have lower incentives for pirating. Unlike previous papers, they find that the piracy rate is positively correlated with the tax burden rate but negatively correlated with the domestic market size and exports over GDP. The authors also separate the impacts of education and R&D on piracy, and find two effects with opposite signs. Moreover, they find that those countries with smaller, more efficient bureaucracies are likely to protect intellectual property more effectively. Finally, they show that the spread of access to the Internet is negatively correlated with the software piracy rate.
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This special issue brings together eight separate contributions reflecting recent advances in the methodology of supermodular optimization and games. Three of the papers fall in the main area of supermodular games. Balbus et al. (Econ Theory 67, 2019, https://doi.org/10.1007/s00199-017-1075-7) study supermodular games with a continuum of players. Jimenez-Martinez (Econ Theory 67, 2019, https://doi.org/10.1007/s00199-018-1107-y) develops a model of versioning in social networks. Barthel and Hoffman (Econ Theory 67, 2019, https://doi.org/10.1007/s00199-017-1092-6) deal with a class of games with mixed-monotonic best responses (in both directions). The second group of papers falls in the related areas of mechanism design, principal agent, and matching. Johnson (Econ Theory 67, 2019, https://doi.org/10.1007/s00199-018-1127-7) considers synchronized Becker-style matching with incomplete information. Kushnir (Econ Theory 67, 2019, https://doi.org/10.1007/s00199-018-1124-x) generalizes the equivalence between Bayesian and dominant strategy implementation to the case of nonlinear utilities. Zambrano (Econ Theory 2019, https://doi.org/10.1007/s00199-017-1087-3) studies a principal-agent model with choice between a risky and a safe projects. Christensen (Econ Theory 67, 2019, https://doi.org/10.1007/s00199-018-1116-x) investigates the stability, existence, and uniqueness of equilibria, as solutions to systems of equations. Finally, Drugeon et al. (Econ Theory 67, 2019, https://doi.org/10.1007/s00199-018-1166-0) consider a class of dynamic programming problems with endogenous discount factor.
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This paper studies the impact of trade liberalization when large and small firms coexist in the same market. I develop a model of imperfect competition where a few oligopolistic firms coexist with a monopolistically competitive fringe. The former have a direct impact on the industry average price level, which depends on the breadth of their product scope. Oligopolists produce higher output per worker, charge higher markups, but also sell at higher prices than monopolistic single-product firms. Under linear demand, trade liberalization triggers the exit of small firms and the entry of foreign large firms, leading to more product variety but also to a higher average price. For a broad class of demand functions, the entry of an oligopolist induced by trade liberalization has a negative impact on consumer surplus. Producer surplus rises, but the total effect on welfare is ambiguous.
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One of the pervasive problems with means-tested public long-term care programs is their inability to prevent individuals who could afford private long-term services from taking advantage of public care. They often manage to elude the means-test net through ‘strategic impoverishment’. We show in a simple model how this problem comes about, how it affects welfare and how it can be mitigated.
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Digitization has impacted firm profitability in many media industries by lowering the cost of copying and sharing creative works. I examine the impact of digital rights management (DRM) - a prevalent strategy used by firms in media industries to address piracy concerns - on music sales. I exploit a natural experiment, where different labels remove DRM from their entire catalogue of music at different times, to examine whether relaxing an album's sharing restrictions increases sales. Using a large sample of albums from all four major record labels, I find that removing DRM increases digital music sales by 10% but relaxing sharing restrictions does not impact all albums equally. It increases the sales of lower-selling albums (i.e., the "long tail") significantly (30%) but does not benefit top-selling albums. These results suggest that the optimal strength of copyright depends on the distribution of products in firms' portfolio.
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In this paper, we extend the concept of stability to vertical collusive agreements involving downstream and upstream firms, using a setup of successive Cournot oligopolies. We show that a stable vertical agreement, the unanimous vertical agreement involving all downstream and upstream firms, always exists. Thus, stable vertical collusive agreements exist even for market structures in which horizontal cartels would be unstable. We also show that there are economies for which the unanimous agreement is not the only stable one. Furthermore, the Stigler statement according to which the only ones who benefit from a collusive agreement are the outsiders need not be valid in vertical agreements. Accords collusifs verticaux stables et instables. Ce texte utilise une approche en termes d’oligopoles à la Cournot successifs pour développer le concept de stabilité et l’appliquer aux accords collusifs verticaux impliquant des firmes en amont et en aval. On montre qu’un accord vertical stable existe toujours : l’accord vertical unanime impliquant toutes les firmes en amont et en aval. Des accords collusifs verticaux existent même pour des structures de marché dans lesquels les cartels horizontaux seraient instables. On montre aussi qu’il existe des économies pour lesquelles l’accord unanime n’est pas la seule solution stable. De plus, l’assertion de Stigler à savoir que les seuls qui bénéficient d’un accord collusif sont les acteurs de l’extérieur de ces accords n’est pas nécessairement valide pour les accords verticaux.
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We consider a continuous-time variant of the classical Economic Lot-Sizing (ELS) problem. In this variant, the setup cost is a continuous function with lower bound , the demand and holding costs are integrable functions of time and arbitrary replenishment policies are allowed. Starting from the assumption that certain operations involving the setup and holding cost functions can be carried out efficiently, we show that this variant admits a simple approximation scheme based on dynamic programming: if the optimal cost of an instance is , we can find a solution with cost at most using no more than of these operations. We argue, however, that this algorithm could be improved on instances where the setup costs are generally “very large” compared with . This leads us to introduce a notion of input-size parameter that is significantly smaller than on instances of this type, and then to define an approximation scheme that executes operations. Besides dynamic programming, this second approximation scheme builds on a novel algorithmic approach for Economic Lot Sizing problems.