Online Piracy and the 'Longer Arm' of Enforcement

Abstract

Controlling digital piracy has remained a top priority for manufacturers of information goods, as well as for many governments around the world. Among the many forms taken by digital piracy, we focus on an increasingly common one -- namely, online piracy -- that is facilitated by torrent sites and cyberlockers who bring together consumers of pirated content and its suppliers. Motivated by recent empirical literature which makes a clear distinction between anti-piracy efforts that restrict supply of pirated goods (supply-side enforcement) and ones that penalize illegal consumption (demand-side enforcement), we develop a simple economic model and discover some fundamental differences between these two types in terms of their impacts on innovation and welfare. All in all, supply-side enforcement turns out to be the "longer arm" -- it has a more desirable economic impact in the long run. Our results have clear implications for manufacturers, consumers, and policymakers.

Keywords: Online piracy, supply-side enforcement, demand-side enforcement, innovation, welfare