Piracy of Digital Products: A Critical Review of the Theoretical Literature

Digital products can be copied almost at no cost and are subject to non-commercial copying by final consumers. Because the copy of a copy typically does not deteriorate in quality, copies can become available on a large scale basis - this can be illustrated by the surge of file-sharing networks. In this paper we provide a critical overview of the theoretical literature that addresses the economic consequences of end-user copying. We analyze basic models of piracy, models with indirect appropriation, models with network effects, and models with asymmetric information. We discuss the applicability of the different modeling strategies to a number of industries such as software, video and computer games, music, and movies.

[1]  J. Tirole,et al.  Some Simple Economics of Open Source , 2002 .

[2]  J. Tirole,et al.  The Open Source Movement: Key Research Questions , 2001 .

[3]  H. Varian.  BUYING, SHARING AND RENTING INFORMATION GOODS* , 2003 .

[4]  Ivan Png,et al.  Information Goods Pricing and Copyright Enforcement: Welfare Analysis , 2003, Inf. Syst. Res..

[5]  S. Rosen,et al.  Monopoly and product quality , 1978 .

[6]  Oz Shy,et al.  Publishers, artists, and copyright enforcement , 2006, Inf. Econ. Policy.

[7]  Jay Pil Choi,et al.  A model of piracy , 2006, Inf. Econ. Policy.

[8]  Stephen P. King,et al.  Network externalities, price discrimination and profitable piracy , 2003, Inf. Econ. Policy.

[9]  A. Krueger.  The Economics of Real Superstars: The Market for Rock Concerts in the Material World , 2005, Journal of Labor Economics.

[10]  G. L. Sanders,et al.  Do Artists Benefit from Online Music Sharing? , 2004 .

[11]  Roman Inderst,et al.  Durable Goods with Quality Differentiation , 2003 .

[12]  D. Bernhardt,et al.  Pirated for Profit , 1998 .

[13]  Oz Shy,et al.  Copyright protection and hardware taxation , 2003, Inf. Econ. Policy.

[14]  Paul Belleflamme.  Pricing Information Goods in the Presence of Copying , 2002 .

[15]  Kiho Yoon,et al.  The optimal level of copyright protection , 2002, Inf. Econ. Policy.

[16]  Edi Grgeta.  Copies and Originals in a Horizontally and Vertically Differentiated Market with Habit and Quality Differences , 2004 .

[17]  Richard Poynder,et al.  The Open Source Movement , 2001 .

[18]  M. Peitz,et al.  The Effect of Internet Piracy on Cd Sales: Cross-Section Evidence , 2004, SSRN Electronic Journal.

[19]  K. R. Conner,et al.  Software piracy: an analysis of protection strategies , 1991 .

[20]  Gergely Csorba,et al.  Read-Only Versions for Free and for Profit: Functional Quality Differentiation Strategies of a Software Producing Monopoly , 2002 .

[21]  Lisa N. Takeyama.  The Intertemporal Consequences of Unauthorized Reproduction of Intellectual Property1 , 1997, The Journal of Law and Economics.

[22]  M. Zhang,et al.  Stardom , Peer-to-peer and the Socially Optimal Distribution of Music , 2007 .

[23]  S. Besen,et al.  Private Copying, Appropriability, and Optimal Copying Royalties , 1989, The Journal of Law and Economics.

[24]  Jong-Hee Hahn,et al.  The welfare effect of quality degradation in the presence of network externalities , 2003, Inf. Econ. Policy.

[25]  Gerhard Illing,et al.  Industrial Organization and the Digital Economy , 2006 .

[26]  William R. Johnson,et al.  The Economics of Copying , 1985, Journal of Political Economy.

[27]  Alejandro Zentner.  Measuring the Effect of Music Downloads on Music Purchases , 2005 .

[28]  Lisa N. Takeyama.  The Welfare Implications of Unauthorized Reproduction of Intellectual Property in the Presence of Demand Network Externalities , 1994 .

[29]  Stan J. Liebowitz,et al.  Economists Examine File-Sharing and Music Sales , 2005 .

[30]  Patrick Waelbroeck,et al.  File-Sharing, Sampling, and Music Distribution , 2004 .

[31]  Gergely Csorba,et al.  Functional Degradation and Asymmetric Network Effects , 2006 .

[32]  S. Liebowitz.  Copying and Indirect Appropriability: Photocopying of Journals , 1985, Journal of Political Economy.

[33]  J. Tirole,et al.  The Economics of Technology Sharing: Open Source and Beyond , 2004 .

[34]  Wendy J. Gordon,et al.  The economics of copyright : developments in research and analysis , 2003 .

[35]  Sougata Poddar.  Network Externality and Commercial Software Piracy , 2005 .

[36]  Patrick Waelbroeck,et al.  Peer-to-peer, piracy and the copyright law: implications for consumers and artists , 2005 .

[37]  M. Alvisi,et al.  Piracy and Quality Choice in Monopolistic Markets , 2002 .

[38]  Oz Shy,et al.  Internet and peer-to-peer distributions in markets for digital products , 2003 .

[39]  Jong-Hee Hahn,et al.  Damaged Durable Goods , 2006 .

[40]  Patrick Waelbroeck,et al.  An Economist's Guide to Digital Music , 2004, SSRN Electronic Journal.

[41]  Patrick Waelbroeck,et al.  Why the Music Industry May Gain from Free Downloading - the Role of Sampling , 2006 .

[42]  Christopher Podmore.  Information economics and policy: In the United States edited by Michael Rubin Libraries Unlimited, Littleton, CO 1983, 340 pp , 1984 .

[43]  J. Avery,et al.  The long tail. , 1995, Journal of the Tennessee Medical Association.

[44]  Oz Shy,et al.  A strategic approach to software protection , 1999 .

[45]  Wendy J. Gordon,et al.  Developments in the economics of copyright : research and analysis , 2005 .

[46]  Stefan Szymanski,et al.  Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis , 2005 .

[47]  Dyuti Banerjee.  Software piracy: a strategic analysis and policy instruments , 2003 .

[48]  Paul Belleflamme,et al.  Piracy and Competition , 2005, SSRN Electronic Journal.

[49]  Martin Peitz.  A Strategic Approach to Software Protection: Comment , 2004 .

[50]  Paul Belleflamme,et al.  Competition Over Piratable Goods , 2004 .

[51]  Michael Waldman,et al.  The Effects of Increased Copyright Protection: An Analytic Approach , 1984, Journal of Political Economy.

[52]  David P. Myatt,et al.  Multiproduct Quality Competition: Fighting Brands and Product Line Pruning , 2003 .

[53]  Rick Harbaugh,et al.  Does Copyright Enforcement Encourage Piracy? , 2001 .

[54]  H. Varian,et al.  Versioning Information Goods , 2000 .

[55]  Ray Corrigan,et al.  Economics of Copyright , 2019, A Textbook of Cultural Economics.

[56]  Arun Sundararajan,et al.  Managing Digital Piracy: Pricing and Protection , 2004, Inf. Syst. Res..

[57]  Yves Pigneur,et al.  Business models for music distribution after the P2P revolution , 2004, Proceedings of the Fourth International Conference onWeb Delivering of Music, 2004. EDELMUSIC 2004..

[58]  K. Arrow.  Economic Welfare and the Allocation of Resources for Invention , 1962 .

[59]  Yannis Bakos,et al.  Shared Information Goods , 1999 .

[60]  Sougata Poddar,et al.  Music Product as a Durable Good and Online Piracy , 2008 .

[61]  Stan J. Liebowitz,et al.  Will Mp3 Downloads Annihilate the Record Industry? The Evidence so Far , 2003 .