Managing Online Piracy in Platform: Pricing and Platform Protection

Most digital content distributed in information-goods platforms encounter the threat of online piracy. Strategic pricing, technology-based platform protection, and deterrent enforcement such as legal and moral measures are viewed as antidotes to piracy. We examine the effects of deterrent enforcement on platform protection and price choices. We develop an analytical model in which the content provider determines the price of content and the platform determines the platform protection. We find that platform protection and deterrent enforcement establish different relationships, depending on the context—complementation in the piracy region, substitution in the threat region with positive platform protection, and independence with zero platform protection in the remaining regions. Surprisingly, when the deterrent enforcement is moderately high, if platform protection is adopted, the optimal price is larger than the monopoly price in the no-piracy region without threat. More surprisingly, in the same deterrent enforcement region, if the platform executes the platform protection, the users, content provider, and platform all will fall into a middle-protection trap. In other words, a “win-win-win” result would arise if the platform gives up its protection.