Online Piracy and the 'Longer Arm' of Enforcement

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 that makes a clear distinction between antipiracy efforts that restrict supply of pirated goods (supplyside 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 policy makers. History: Accepted by Chris Forman, information systems. Supplemental Material: The online supplement is available at https://doi.org/10.1287/mnsc.2017.2984. Keywords: online piracy * supply-side enforcement * demand-side enforcement * innovation * welfare
1. Introduction Piracy of digital goods--ranging from movies, music, and TV shows to video games and computer software--has become an important issue facing their manufacturers and, at times, consumers and [...]