[darryl]

Torrentfread reports on a study by "Indiana University researcher Antino Kim conducted together with colleagues from the University of Texas-Dallas and the University of Washington",

Torrentfreak Article

The study suggests that in some circumstances tolerating a certain level of piracy can benefit Consumers, Creators and Retailers. The particular circumstances where this may be the case involve essentially Creators and/or Retailers with monopoly control of prices of "Information Goods". To partially quote:

.... piracy limits the pricing power of both the creator and the retailer. This reduces the impact of double marginalization, which occurs when creators and retailers both add significantly to the price of a product.

In some situations this so-called "shadow competition" from piracy pushes the price closer to the economic optimum, a price point at which everyone benefits. One example used is the price of an HBO subscription, including of course access to Game of Thrones. It is said that HBO is not going to extremes to prevent piracy of what is probably the most pirated show in history, implying of course that HBO recognises, at least by its actions or lack thereof, that such piracy may in fact not be doing them harm. To quote again from Torrentfreak:

Following the logic of the paper, the threat of piracy keeps the price of HBO cable subscriptions down. Neither HBO (creator) nor the cable and satellite TV operators (retailer) are overcharging, despite their relative monopolies. This means a better price point and more legitimate consumers.

This is an interesting argument. It does not claim that this principle is universally applicable, even in cases where monopoly power is enjoyed by creators and retailers. In theory it is at least potentially applicable where monopoly power is used to artificially inflate prices of "Information Goods" It has an interesting operation in regard to Copyright, since copyright grants the monopoly control of pricing and envisages a higher price to both the retailer and the consumer. Nevertheless the prices set remain subject to the market. There is still an optimum price at which net revenue is maximised, though many Industries with limited or no competition fail to come to this price.

Traditional book publishing is a good example, where pricing policy set by an oligopoly in the absence of competition in the past are now under pressure. The defence of the higher prices essentially come down to the fear that lower prices would devalue the product in the eyes of the consumer. Some traditional publishers have responded to the challenge with lower prices and better deals for authors. The Big 5 so far have not, despite both legitimate and "shadow" competition, and seem to be slowly losing market share as a result. Arguably this is a case where the argument set out in the paper would apply, except that the Big 5 are clinging to high prices for other reasons. This means they lose potential legitimate customers, not only to Piracy but to Indies, Libraries and of course people who simply won't pay the higher price and simply don't buy the book or a replacement.

Having given a little thought to the article I think the principle is almost intuitively correct. This does not mean that piracy is generically a good thing. Just that it can be in some cases. Am interested in others thoughts on the issue.