Does Piracy Lead to Product Abandonment or Stimulate New Product Development?: Evidence from Mobile Platform-Based Developer Firms

Abstract

With the growth of digital platforms, understanding the role of property rights on those platforms has become increasingly important. Digital piracy, the unauthorized copying and distribution of digital products, is therefore an important strategic issue, both because of lost revenues and because it is thought to decrease innovation. Yet, while the latter effect is often argued, empirical evidence is limited. We study whether piracy affects innovation and whether it leads firms to shift to different types of innovations. By studying a large piracy event in a mobile app marketplace, we find that piracy leads to a decrease in the release of incremental innovations, such as bug fixes, but does not decrease more substantial revisions. Additionally, it is associated with subsequent new product development.