“Piracy” Is the Result of Market Failures

Publishers of digital media, be it music, movies, or software, have long argued that it’s a legal and moral problem.  The reasons, they claim, that unauthorized copies (I refuse to call them illegal or pirate) exist is because either organized criminals are stealing their “intellectual property”, or people are too stupid or immoral to respect their so-called property.

I’ve long argued that so-called intellectual property isn’t property at all.  It’s a privileged monopoly bestowed by the government and usually it has negative consequences for society: it raises costs and it slows and discourages innovation.

Economically, the studies that the copyright industry uses to estimate their supposed “losses” to piracy are totally bogus.  They assume that every unauthorized copy could have been sold for the existing market price.  But that violates everything we know about demand curves.  Typically people go for unauthorized copies because the existing legal market is either too expensive for the value provided, or too expensive for available budget, or simply not available.

Now Michael Geist, a Canadian professor goes even further and explains how my view is supported by a new international study by the Social Science Research Council.  They attribute the existence of so-called piracy to “market failures” – the overpricing and inadequate marketing/distribution strategies of the copyright holders. (emphasis is mine)

Trademark and copyright holders frequently characterize piracy as a legal failure, arguing that tougher laws and increased enforcement are needed to stem infringing activity. But my weekly technology law column (Toronto Star version, homepage version) notes that a new global study on piracy, backed by Canada’s International Development Research Centre, comes to a different conclusion. Following several years of independent investigation in six emerging economies, the report concludes that piracy is chiefly a product of a market failure, not a legal one.

The Social Science Research Council launched the study in 2006, identifying partner institutions in South Africa, Russia, Brazil, Mexico, Bolivia, and India to better understand the market for media piracy such as music, movies, and software. The result is the most comprehensive analysis of piracy to date.

The 440-page report challenges many of the oft-repeated claims about piracy and how address it. For example, it finds that contrary to repeated claims that there are strong links between piracy and organized crime, no such link exists. …

Similarly, it finds no evidence that anti-piracy “education programs” – some of which have been launched in Canada – have any discernable impact on consumer behaviour. …

The report also rejects the conventional wisdom that tougher penalties provide a strong deterrent to piracy activities. ..

While setting the record straight on piracy myths is valuable, the report’s most important contribution comes from chronicling how piracy is primarily a function of market failure. In many developing countries, there are few meaningful legal distribution channels for media products. The report notes “the pirate market cannot be said to compete with legal sales or generate losses for industry. At the low end of the socioeconomic ladder where such distribution gaps are common, piracy often simply is the market.”

Even in those jurisdictions where there are legal distribution channels, pricing renders many products unaffordable for the vast majority of the population. Foreign rights holder are often more concerned with preserving high prices in developed countries, rather than actively trying to engage the local population with reasonably priced access. These strategies may maximize profits globally, but they also serve to facilitate pirate markets in many developed countries.

2 thoughts on ““Piracy” Is the Result of Market Failures

  1. Pingback: Corporate Entitlements: Music Edition « EconProph

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