Reducing the occurrence of piracy
The general consensus among the copyright piracy literature is that economic incentives and enforcement are both effective strategies that complement one another in reducing the occurrence of piracy. Yet, the key factor underlying these strategies is the ability of the media industries to influence an individual's willingness to pay (WTP) for legal purchases when illegal versions exist.
There is a substantial literature focusing on the determinants of copyright piracy in the software and music industries (Varian, 2005). We focus on end-user piracy, where individuals acquire goods for their own use rather than for resale. (1) Cheng, Sims, and Teegen (1997) and Cohen and Cornwell (1989) were among the first to tie piracy to demographic factors, risk preferences, peer effects, income, and knowledge of copyright law. Proposed solutions to piracy have emphasized the importance of enforcement (e.g., threats of litigation and increased awareness of penalties for piracy) as well as economic incentives (Conner and Rumelt, 1991; Varian, 2005).
The role of enforcement has been debated as some studies show enforcement measures to reduce piracy, while other studies do not. Yoon (2002) showed that enforcement creates a private cost to consumers that deters piracy, and Stolpe (2000) argued that enforcement can be effective if firms can afford such measures. At a national level, Marron and Steel (2000) and Gopal and Sanders (1998) showed that countries with stronger legal systems exhibited lower piracy rates. On the other hand, Ben-Shahar and Jacob (2004) argued that selectively reducing copyright enforcement might increase a firm's market share in legal sales. This finding supports Shy and Thisse (1999), Gayer and Shy (2003), and Peitz (2004), who argued that enforcement reduces the network externalities that drive legal market demand.
While much of the debate on copyright piracy has focused on what determines the likelihood or extent of piracy, no existing research has focused on the factors influencing the underlying WTP for legal purchases when illegal versions exist. Reducing piracy entails reducing the net value of participating in the illegal market or increasing the net value of participating in the legal market, or both. Economic incentives and enforcement actions both contribute to such outcomes though it is unclear to what extent such strategies influence the willingness of individuals to pay for goods in the legal market.
Chiang, Eric P., and Djeto Assane. "Estimating the willingness to pay for digital music." Contemporary Economic Policy 27.4 (2009): 512+. Business Economics and Theory Collection. Web. 23 Aug. 2016.