Motion pictures and piracy : a theoretical investigation

In recent years, copyright-protected markets have been challenged by the sharp rise in usage of peer-to-peer networks. Many of these networks participate in illegal sharing of copyrighted materials, such as books, music and movies. The illegal copying and sharing of intellectual property – also known as piracy – is depicted by firms and media as a terrible crime. But what are the actual consequences of the file-sharing activity? While the music industry has progressed toward lower investment costs at the same time as piracy arose, motion pictures are as – or even more – expensive to produce than before. When reproduction costs are negligible, this makes the motion picture industry more vulnerable to piracy. With the aim of gaining knowledge about motion picture piracy, this paper extensively review the motion picture industry and reviews literature relevant to piracy in information good markets, motion pictures in particular. It then constructs two models of motion picture piracy with origins in different parts of the theory of industrial organization. Even though the models are not complete in any sense of the word, they nonetheless provide some interesting results. It is shown that, under specific circumstances, piracy can both raise and lower legal demand for motion pictures. Effects upon profits cannot be unambiguously concluded with. It is also shown that an increase in a consumers cost of piracy can negatively affect demand in specific periods – due to fewer consumers being charged with a higher price. It is concluded that further research is much needed to fully understand the workings of piracy in the motion picture industry and its total welfare effects