Optimal Timing of Sequential Distribution in the Presence of Piracy

Abstract

A number of different approaches to reduce digital piracy have been at the center of the debate since the rise of Internet. Nevertheless, most of them have disregarded the ability that firms or creators of the pirated good have to hinder this illegal behavior. The model in this paper presents a clear explanation of how changes in the sequential distribution of a product provides to a firm a valuable instrument to prevent piracy. In the absence of piracy, firm’s profits are independent of the way in which content is released. However, when piracy is a real threat, the firm can soften its effect by strategically selecting the share of the product offered in each period, changing consumers’ valuation and making piracy less attractive from their perspective. This optimal strategy gives the monopolist the possibility of raising total profits by increasing the market for the original and reducing total pirated copies.