Price, Piracy, and Search: Which Pirates Respond to Changes in the Legal Price?

Abstract

Prior research suggests that high prices may motivate the decision to pirate entertainment goods. We analyze a natural experiment that decreased the tax rate, and hence also the net prices of eBooks, by 14% in Ireland while several other European countries were not affected. Using country-specific data on piracy visits, we find that this price decrease caused only a small and statistically insignificant decrease in total eBook piracy visits. However, we further decompose piracy visits into those of direct pirates, who navigate directly to piracy sites, and indirect pirates, who search to find piracy sites. The 14% price decrease caused no change in direct piracy visits but caused a statistically significant 27% decrease in indirect piracy visits. These findings align with prior research suggesting that search can play an important role in piracy, but only for some pirates. Our results demonstrate the potential of using price to mitigate piracy, but they also highlight the challenges firms face in competing with piracy for experienced pirates. We conclude by detailing both the policy and managerial implications of our work.

Keywords: digital piracy, pricing, information goods, natural experiment, generalized synthetic control