“A win-win situation”: The economic benefits of digital piracy

An illustrated concept of digital piracy
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Researchers have assessed whether digital piracy can have surprising economic benefits for retailers, consumers and manufacturers. Should piracy be tolerated?

One example is HBO’s television series “Game of Thrones”, which millions of fans illegally download to watch, making it the most pirated TV program. But the TV network has not taken an aggressive approach towards this digital piracy.

Researchers at Indiana University’s Kelley School of Business and two other schools have shown that moderate digital piracy can have positive economic benefits for the manufacturer and retailer, but not at the expense of the consumer.

A win-win economic situation?

Antino Kim, an assistant professor of operations and decision technologies at Kelley, and his co-authors, wrote: “When information goods are sold to consumers via a retailer, in certain situations, a moderate level of piracy seems to have a surprisingly positive impact on the profits of the manufacturer and the retailer while, at the same time, enhancing consumer welfare.”

“Such a win-win-win situation is not only good for the supply chain but is also beneficial for the overall economy,” they continued.

A tolerant attitude towards digital piracy

The authors clarified: “Our results do not imply that the legal channel should, all of a sudden, start actively encouraging piracy.”

However, they suggest that manufacturers and retailers could recognise piracy as beneficial and display tolerance to a certain degree. They added: “The implication is simply that, situated in a real-world context, our manufacturer and retailer should recognize that a certain level of piracy or its threat might actually be beneficial and should, therefore, exercise some moderation in their anti-piracy efforts…This could manifest itself in them tolerating piracy to a certain level, perhaps by turning a blind eye to it,” they add. “Such a strategy would indeed be consistent with how others have described HBO’s attitude toward piracy of its products.”

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