Regulating Digital Piracy Consumption

61 Pages Posted: 30 Aug 2022 Last revised: 26 Dec 2023

See all articles by Jieteng Chen

Jieteng Chen

The Chinese University of Hong Kong (CUHK)

Yuetao Gao

Xiamen University

T. Tony Ke

The Chinese University of Hong Kong (CUHK)

Date Written: December 25, 2023

Abstract

Regulators across the globe have imposed penalties on consumers for digital piracy consumption. Contrary to expectations, however, digital piracy consumption has continued to grow. We develop a simple model of competition between a copyright holder and a pirate firm to offer a plausible account for this observation as well as actionable guidelines for optimal regulation design. The core of our idea is to endogenize the pirate firm's strategic investment in anti-tracking technologies that help consumers evade a regulator's penalty. We find that as the penalty rises, piracy consumption can surprisingly increase after decreasing first; relatedly, the copyright holder and the society may suffer from tighter regulation. Depending on the cost of anti-tracking technologies of the pirate firm, the regulator optimally sets the penalty to operate in two different regimes. When the technology is available at a low cost, the regulator can achieve the goals of maximizing social welfare and minimizing piracy consumption simultaneously by setting a moderate penalty that maximizes consumers' expected penalty and tolerates some level of piracy consumption. In contrast, when the technology is costly, the regulator should set a relatively high penalty to completely impede piracy supply. Additionally, we show that supply-side regulation does not substitute away demand-side regulation, and educating consumers about copyright protection may unintentionally lead to an increase in piracy consumption. Lastly, we identify complex non-monotonic long-run effects of piracy consumption regulation on the copyright holder's incentives for content creation and copyright protection.

Keywords: digital piracy, regulation, copyright protection

Suggested Citation

Chen, Jieteng and Gao, Yuetao and Ke, Tony, Regulating Digital Piracy Consumption (December 25, 2023). Available at SSRN: https://ssrn.com/abstract=4198295 or http://dx.doi.org/10.2139/ssrn.4198295

Jieteng Chen

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong

Yuetao Gao

Xiamen University ( email )

Xiamen, Fujian 361005
China

Tony Ke (Contact Author)

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong

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