The hidden treasure of digital piracy? Can boost bottom line for manufacturers, retailers

phys.org | 1/28/2019 | Staff
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HBO's popular television series "Game of Thrones" returns in April, but millions of fans continue to illegally download the program, giving it the dubious distinction of being the most pirated program.

Many may wonder why the TV network hasn't taken a more aggressive approach to combating illegal streaming services and downloaders. Perhaps it is because the benefits to the company outweigh the consequences. Research analysis by faculty in Indiana University's Kelley School of Business and two other schools found that a moderate level of piracy can have a positive impact on the bottom line for both the manufacturer and the retailer—and not at the expense of consumers.

Information - Goods - Consumers - Retailer - Situations

"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," wrote Antino Kim, assistant professor of operations and decision technologies at Kelley, and his co-authors.

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

Piracy - Kim - Colleagues - Times - Effect

While not condoning piracy, Kim and his colleagues were surprised to find that it can actually reduce, or completely eliminate at times, the adverse effect of double marginalization, 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.

Manufacturer - Point - View - Retailer - Thing

"From the manufacturer's point of view, the retailer getting squeezed is a good thing," Kim said. "It can't mark up the product as before, and the issue of double marginalization diminishes. Vice versa, if the manufacturer gets squeezed, the retailer is...
(Excerpt) Read more at: phys.org
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