DIGITAL PIRACY AND THE PERCEPTION OF PRICE FAIRNESS: EVIDENCE FROM A FIELD EXPERIMENT

By Anna Kukla‑Gryz, Joanna Tyrowicz, Michał Krawczyk

Digital piracy is an interesting case of an extremely common activity with a rather shady ethical and legal status. One way of understanding this paradox is in terms of numerous justifications for downloading files from unauthorized sources. Maybe the most commonly heard argument is that the original products are unfairly priced. Does unfair price really drive an easy-going approach to digital piracy?

From an ethical viewpoint, unfair prices in itself are not a good excuse. I should not steal a Bugatti Chiron just because I want it but cannot afford to pay its crazy price. Then again, there are a number of much better arguments against the “piracy is theft” narrative. Perhaps the key one is that there is no direct loss – unlike when a physical object is stolen – and others can still enjoy the downloaded item. In economics jargon, the marginal cost of providing the good is zero (or close to that). This is one reason why prices of digital products can be easily seen as “artificially inflated” or unfairly high – if it does not cost them a penny to send the file my way, why should I pay $199?

Previous research has investigated how customers may want to abstain from consumption altogether as the price goes up and especially so if it goes up for “unfair” reasons. But do such considerations also make customers ready to become pirates? To investigate if there is a link between perceived price fairness and piracy, we conducted an online experiment. Focusing on the market for electronic books in our native country, we invited the customers of the largest online ebook store in Poland, Publio.pl, to participate. As a measure of digital piracy, we asked customers: “Have you acquired an ebook or an audio-book from an unauthorized Internet source in the last three months?” We recognize that participants may be unwilling to admit to such activities. Besides making the survey fully confidential, we used a special method dubbed Bayesian Truth Serum. Although it sounds like magic, it actually allows the experimenter to reward truthful answer to a question, without knowing what this truthful answer in the case of any individual participant could be. In our case, the reward involved increasing one’s chance to win a gift certificate.

Trying to measure price unfairness, we asked our participant to recall their most recently traditionally purchased fiction book (thus a different item from the one they may have downloaded from an unauthorized source but one belonging to the same category – books). We asked them how much they paid for it. Then, because it is not clear how to establish just how (un)fair they thought this price was, we tried three different approaches. First, we asked what was the maximum price they would be willing to pay for this particular book. Second, we asked what price for this particular book they would consider fair. Finally, assuming the book was available for sale in a “pay-what-you-want” scheme, how much would they pay for it. The actual price was considered “unfairly high” if it was high compared to one of these three benchmarks. For example, if a customer was maximally willing to pay up to $30 and was asked to pay $29, her consumer surplus was a mere one dollar, possibly triggering a thought that this was not a very fair deal.

As it turned out, as many as 24% of our nearly 1,000 participants (who are otherwise paying customers of publio.pl) admitted to having also downloaded from unauthorized sources. More importantly, as established in a series of different specifications of probit models, the greater the experienced subjective unfairness in pricing (no matter which of our three measures we used), the higher the prevalence of downloading from unauthorized sources.

Trying to identify the mechanism behind this result, we asked our participants a number of additional questions motivated by two theories. Under psychological reactance theory, consumers who are frustrated by the unavailability of the overly expensive good may get angry at the supplier and be willing to punish them. It has not been explored before if punishment via unauthorized consumption is appealing in such a context. An alternative explanation would be in terms of moral “cleansing” or “licensing”. The idea is that doing something good erases a “sin” – either an already committed one or one to be committed in near future. In our context, paying a high price (and thus contributing to the creation of cultural goods) may provide a moral “license” for downloading from unauthorized sources in the future, or “cleanse” the pirate behavior afterwards.

While distinguishing between the two possible psychological reasons to motivate piracy is not easy, we tried a few different approaches to gain further clarity. For example, the respondents were asked to provide their views on the scale ‘strongly disagree’—’strongly agree’ to two statements concerning the nature of copyright. These two items were “Placing limitations on how people can share books with strangers constrains personal freedom” and “Unclear or incorrect laws, such as the regulation on file-sharing through such services, may be ignored.” Reactance theory would predict that participants generally embrace these statements and that those who do, tend to react to price unfairness with extra pirating. Our general finding was that the impact of price unfairness on willingness to commit piracy is based on a mix of different mechanisms. In either case, one important conclusion from our study is that creative industries may find it easier to compete with unauthorized downloading if they can credibly convey the message that their prices are not unfairly high.

This article is based on:

Kukla-Gryz, A., Tyrowicz, J. & Krawczyk, M. Digital piracy and the perception of price fairness: evidence from a field experiment. J Cult Econ (2020). https://doi-org.eur.idm.oclc.org/10.1007/s10824-020-09390-4

About the authors:

Anna Kukla-Gryz is an Assistant Professor of Economics at the University of Warsaw and a Research Fellow at GRAPE.

Michal Krawczyk is a Professor of Economics at the University of Warsaw.

Joanna Tyrowicz is a Full Professor of Economics at the University of Warsaw and a Research Fellow at GRAPE and at IZA.

About the image:

“Book reader” by @Doug88888 is licensed under CC BY-NC-SA 2.0

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