Piracy of digital products: A critical review of the theoretical literature

Digital products can be copied at almost no cost and are subject to non-commercial copying by final consumers. Because the copy of a copy typically does not deteriorate in quality, copies can become available on a large scale basis - this can be illustrated by the surge of file-sharing networks. In this paper we provide a critical overview of the theoretical literature that addresses the economic consequences of end-user copying. We analyze basic models of piracy, models with indirect appropriation, models with network effects, and models with asymmetric information. We discuss the applicability of the different modeling strategies to a number of industries such as software, video and computer games, music, and movies.