Presence of piracy and legal protection: Decisions in the digital goods market under different contracts

Digital piracy remains a challenge for digital content developers and platforms. This study explores the impacts of digital piracy on content developers, platforms, and consumers when platforms make efforts to reduce piracy. The reselling and agency selling contracts between content developers and platforms are investigated. According to the equilibria, we show that there are three different cases: no piracy, the threat of piracy, and the presence of piracy. Under different business contracts, the equilibria and impacts of piracy on the supply chain differ considerably. Surprisingly, we find that although the presence of piracy always negatively affects chain members’ profits under the agency selling contract, it can positively affect such profits in certain situations under the reselling contract. In addition, we show isolated Pareto improvement regions under the reselling and agency selling contracts. We also find that if there is a large gap between the high and low protection levels, then the platform prefers the high level over the low level, regardless of the business contract. Furthermore, compared with the adoption of the reselling contract, we observe that in most cases, the adoption of the agency selling contract results in a lower piracy rate and a higher consumer surplus.