How Much Anti-Piracy Effort is Too Much? - A Study of the Global Software Industry

Abstract:     
Piracy is commonly considered to be detrimental to the software industry. The industry has taken aggressive steps to curb piracy worldwide. This study questions the wisdom of such aggressive anti-piracy effort in a competitive environment. We show that piracy attracts the most price sensitive consumers. By removing these consumers from the market, piracy reduces firms' incentive to engage in self-destructing price competition. In equilibrium, piracy can increase the industry profit in markets with large variations in consumer price sensitivity. Using software sales and piracy data from 50 countries between 1996 and 2002, we find that anti-piracy effort has indeed hurt the software industry in such markets.

Keywords: piracy, digital piracy, intellectual property, software, competition

JEL Classifications: C23, D31, D43, L13, L86, O34

Working Paper Series