U.S. Gov. : previous studies about economic impact of piracy lack substance

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More explicitely a report from the U.S. Government Accountability Office which had to evaluate previous studies about the impact of pirated goods states right from the summary:

"Some consumers may knowingly purchase counterfeits that are less expensive than the genuine goods and experience positive effects (consumer surplus), although the longer-term impact is unclear due to reduced incentives for research and development, among other factors. Three widely cited U.S. government estimates of economic losses resulting from counterfeiting cannot be substantiated due to the absence of underlying studies. Generally, the illicit nature of counterfeiting and piracy makes estimating the economic impact of IP infringements extremely difficult, so assumptions must be used to offset the lack of data. Efforts to estimate losses involve assumptions such as the rate at which consumers would substitute counterfeit for legitimate products, which can have enormous impacts on the resulting estimates. Because of the significant differences in types of counterfeited and pirated goods and industries involved, no single method can be used to develop estimates."

Bold mine.

Basically, it's refreshing to see black on white from an official agency some thought on the basic idea that always seemed more reasonable to me in the face of the "every pirated copy is a stolen copy" camp: not every copied piece of software replaces a bought copy of software.

The report is lengthy, but worth a quick browsing. A few other slightly unusual excerpts:

"consumers may use pirated goods to “sample” music, movies, software, or electronic games before purchasing legitimate copies, which may lead to increased sales of legitimate goods."

Which resounds with me, because I almost always download a copy of software if a proper demo is not available. We might also wonder if having access to a much wider gamut of the offer for testing won't lead to a better selection of the genuinely better products, with further beneficial effects for all the community (increased weight of product intrinsic values versus "external", marketing based ones in sales response)

And also:

"For example, some experts we spoke with and literature we reviewed discussed how consumers after being introduced to the pirated version might get locked into new legitimate software because of large switching costs, such as a steep learning curve, reluctance to switch to new products, and search costs incurred by consumers to identify a new product to use."

Which is spun into direct lock-in gains for the software producers, but I may add that can also end up in a bigger value creation for the communtiy at large.

That is: people, especially young people and students, gain a considerable amount of know-how through the use of copied specialistic software. In my field I think of pieces of software like Mathematica or AutoCAD. There are education versions of some of that software, but the pirated version is generally richer in features and more accessible.

All that added knowledge and training has a value, that is translated into a higher quality and value of their work and thus re-enters the economy through the employment of those better trained people.

Well, that's food for thought. I find interesting that the evaluation of the impact of IP piracy is at least being discussed in fair terms, and the doubts on many a priori assumptions are being voiced by an official insttution in the same nation of the ACTA.




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Thanks for posting this WereKitten. Hopefully this adds something useful to the one-dimensional view of piracy that some people have.

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Thanks for the post.

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great post its interesting that the US is actually looking into this in the same way Europe did nearly 10 years ago...

but still it wont change anything since Publishers of the likes of games are over protective of their product, which in some cases is doing damage (C&C)

though history clearly has shown us that piracy can kill products such as the dreamcast and to a lesser extent the PSP so its good that the big scary bossy US government is starting to looking into it just don't expect anything to change.

Good post. I suppose that a few people pirate software for semi-legitimate reasons, none that I know though. All the people I know that pirate stuff do it because they can really, and a couple have the "the world owes me something attitude too". "Like if they didn't charge $60 for it I wouldn't pirate it" kind of thing. Maybe the pirates I know are just dicks.

I still think it's stealing and a general negative impact on whatever industry is being pirated.

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Well I can concede the idea of "sampling" but you have to question how much return that is. It's hard to imagine too many buying the full product if they can already have the full product. For the sake of music, you download it off the web and you can burn it to a CD, put it on PC, manipulate it numerous times, or put it on your MP3 player. There would be no reason to really then go purchase the item. Moreso with the case of music is of course the notion of numerous other outlets for sampling such as youtube, myspace/facebook, movies, and other forms of entertainment that use the music. Music is "advertised" all the time.

Now I guess when you attribute that to games or movies then maybe it is a little less clear as it can't be manipulated in as many ways. But I would still argue the same thing that once you have that final product why would you feel the necessity to buy the same product. There might be some rollover from attempt to support a product they like or moral consequence, but it's hard to think many would see it the latter way simply because they don't see it as morally wrong.

And that last point I brought up is really the issue I see with piracy is that people don't see these downloads as just "demoing" or sampling. They don't think what they are doing is wrong. And it really comes from the technology just being so new. I mean we understand walking into someone else's store, home, etc. that they should be respected and things people provide should be rewarded for their effort. But this isn't the same with online downloads. It is an impersonal donwload of something that anyone can access with apparently no legal or moral obligation. Really it's just a perception problem as it does infringe upon the same moral issues but it's unrecognizable without the human condition present and traditional settings. And I think this is why there is still a defense of these people and well a defense for themselves. Also reasons why they are called pirates and not thieves, crooks, or other things. Pirates, despite being thieves, are usually viewed in a more positive light (such as rebels to a corrupt system).

So although that may be the moral side, after viewing the article they do a very good job trying to take in a lot of variables. I just would like to speak on my terms that if the only way to purchase a piece of entertainment was from retail first hand then there wouldn't be the knowledge that they had a choice. You take out choices and either they buy the product or they don't. So piracy seems to be a mix of issues causing games to be less profitable such as "used" sales, ebay/amazon, pawn shops, etc. That is more a problem with the capitalist state rather than a question of morality. But obviously if the ideal situation existed then the product would be cheaper to sell and potentially they could open to a wider clientele. And with that, second hand sales could actually live with that notion as those don't contribute to the higher price of games (if anything they force them to stay competitive) while obviously free doesn't constitute competition.

So I do think there are some potential instances of where piracy can be shown to have affected profits but once again no more than said second-hand shops. But where the important aspect of that is, companies can compete with second hand sellers but they can't compete with free and I think that is the key difference. For instance, let's say businesses sell blankets for $10 a blanket. Then say the government decides to take over a large mass of blanket production and offers them around a country for free. Same product and same means, but the businesses have no way to counteract that move. But, if a used store sold newly cleaned and freshened cloths for $7 then the business has a way to compete. Whether it be the ability to buy something new, or incentives to buy it such as buy 1 get 1 half off kind of things. As long as things are being sold for a price then things can compete. And although it takes away at potential profit, it is better for the market as a whole. Free however isn't good for a capitalist market.

So I guess that is my take on the situation. Good read and thanks for putting it up.

So what is the usual rate that agencies attribute to lost sales on piracy?

That was pretty level headed view. Thanks for posting.

This reminds me of the last years record sales in Finland. The data showed decline in sales and the reason for this: piracy.

Not only had the sales been in decline for a decade already, recession hit, population aging (while the industry relies heavily on hits for teenagers) and other forms of entertainment (music games and TV music channels coming more in common in households), still the reason for decline was piracy.
Usually when i see someone blaming piracy, it sounds like "just because you don't see them, doesn't mean they aren't coming to get you".

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