Our work most closely pertains to the literature on the impact
of piracy in markets for information goods. Most of the work
in this area has focused on software or music piracy, and
particularly on peer-to-peer file sharing networks and their
impact on firm profitability. A prominent trend in the analytic
literature has been to show that piracy need not be bad for
firms. Prasad and Mahajan (2003) argue that piracy may be
good for a new product if the firm needs to establish an initial
user base to speed up diffusion. Gu and Mahajan (2005)
show that because piracy removes the most price sensitive
buyers from the market it can reduce price competition, thus
benefiting sellers. Finally, Peitz and Waelbroeck (2003) show
that piracy can act as a free “sample,” increasing product
awareness.