Piracy Propagation of Information Goods : Demand and Supply - side Dynamics in P 2 P Networks

The extent of piracy for a specific digital good can be characterized by the laws of demand and supply. The music industry and its trade organization, the RIAA, have recognized this and taken aggressive steps to diminish demand as well as supply. In this study, we develop a model that describes the dynamics of demand and supply-side of piracy propagation. Using the model, we investigate the effect of anti-piracy measures on piracy. Our model of piracy propagation, a system of differential equations, incorporates characteristics of individuals‟ participation behavior and topological properties of P2P systems. We obtain a unique analytical solution of the model and analyze the key drivers of piracy propagation. In the empirical analysis we quantify the impact of anti-piracy measures that are administered prior to the official release of the song. We analyze two anti-piracy measures: the reduction of file supply and the reduction of file demand. The impact of a reduction of file supply is modest. Our results show that the removal of 1% of file supply about 6 weeks prior to the official song release date leads to a reduction of about 0.7% of cumulative file demand and 0.6% of cumulative file supply at the release date. However, the impact of a demand reduction is significantly greater. A decrease of 1% of file demand about 6 weeks prior to the release will cut about 1.57% of cumulative file demand and 0.6% of cumulative file supply at the release date. From a policy point of view, our results suggest that taking anti-piracy measure early on is important. In addition, and potentially more controversial, our results provide support to the notion that in order to reduce piracy, punishing end-users is more effective than efforts to control the supply of unauthorized music files.