Moderate digital piracy can benefit show manufacturers, retailers

Moderate levels of digital piracy can have a positive impact for show manufacturers and retailers, without affecting the welfare of the customers, a study has found.

HBO's popular television series "Game of Thrones" returns in April, but millions of fans continue to illegally download the programme, giving it the dubious distinction of being the most pirated programme.

The study, published by the journal MIS Quarterly, suggest that a moderate level of piracy may have benefitted the manufacturers.

"When information goods are sold to consumers via a retailer, in certain situations, a moderate level of piracy seems to have a surprisingly positive impact on the profits of the manufacturer and the retailer while, at the same time, enhancing consumer welfare," said Antino Kim, assistant professor at Indiana University in the US.

"Such a win-win-win situation is not only good for the supply chain but is also beneficial for the overall economy," said Kim.

While not condoning piracy, researchers were surprised to find that it can actually reduce, or completely eliminate at times, the adverse effect of double marginalisation, an economic concept where both manufacturers and retailers in the same supply chain add to the price of a product, passing these markups along to consumers.

The professors found that, because piracy can affect the pricing power of both the manufacturer and the retailer, it injects "shadow" competition into an otherwise monopolistic market.

"Our results do not imply that the legal channel should, all of a sudden, start actively encouraging piracy," researchers said.

"The implication is simply that, situated in a real-world context, our manufacturer and retailer should recognise that a certain level of piracy or its threat might actually be beneficial and should, therefore, exercise some moderation in their anti-piracy efforts," they said.