Fighting digital piracy: Can secondary markets for digital goods help

The Internet and advanced networking technologies have lead to a rise in the number of pirated digital products. The content industry claims that digital piracy costs several billion dollars per year and is the main reason for declined sales of physical media. Despite the new legislations imposed to address copyright infringements and advanced technological security measures, digital piracy keeps on growing and becomes even a greater threat for copyright owners. Besides deterrent and preventive controls, researchers have also underlined the importance of business models used to distribute and price digital products for the issue of digital piracy. It is believed that an innovative business model that employs a price discrimination technique and an efficient distribution method may help decrease piracy of digital goods.;This study proposes a dual channel model that utilizes both a primary and a secondary market for the transaction of digital products, which allows consumers to sell the products that they have purchased by using a legal platform. Implementing a secondary market and coordinating it with a primary market for the distribution of digital goods can decrease the level of digital piracy because of mainly two reasons. First, it offers more profitable transactions for consumers, thus results in an increase in the total number of buyers. Second, availability of a secondary market can increase the degree of how consumers perceive the fairness of digital good transactions.;This research first investigates the profitability of the dual channel model for consumers and copyright owners, and the level of piracy in the dual channel model with an economic model. The economic model offers a secondary market within a digital goods retail monopoly framework as a practical alternative to leasing for capturing rents. Model results show that the retailer can increase revenue and market coverage relative to primary market-only sales, which implies a reduction in piracy and an improved relationship with content creators at no cost. Revenue and piracy performance of the proposed model in the presence of piracy is also evaluated by incorporating general model of piracy into the economic model. Additionally, this research uses a behavioral intention model to test the anti-piracy performance of the proposed distribution and pricing mechanism, and compares it with a traditional business model with an experimental survey. Results show that consumers tend to pirate less if there is an available secondary market for the transaction of digital goods. This relation between availability of a secondary market for digital goods and intention to pirate is also mediated by perceived equitable relationship and attitude toward piracy. Finally, it is found that in the presence of a secondary market, consumers perceive legal transactions of digital products more fair.