【Topic】
Regulating Digital Piracy Consumption
【Host】
Prof. ZHENG Weimin, Department of Tourism and Hospitality Management, School of Management, Xiamen University
【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 should optimally set 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. Lastly, we identify complex non-monotonic long-run effects of piracy consumption regulation on the copyright holder's incentives for content creation.
【Speaker】
Yuetao Gao is an Assistant Professor of Marketing in Xiamen University. He holds a Ph.D. in Marketing from National University of Singapore. His research areas include counterfeiting, digital piracy, and their regulation. His research papers have appeared in Marketing Science, Management Science, and Production and Operations Management.
