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Media Piracy as an Economic Fallacy
By:
Megan Mierzejewski
September 6, 2016
Assignment 1: Learning Economics in One Lesson
A prime example of an economic fallacy is media piracy. As technology development
increases and improves, media piracy increases significantly alongside it due to the ease of
online distribution and leads to concern of reduced sales. Piracy is defined by the MerriamWebster Dictionary as being “the act of illegally copying someone's product or invention without
permission” and media piracy, specifically, has become a prevalent activity in the United States.
Piracy has been made illegal to help protect the creators and owners from loss of money and
rights. The seen consequences of Media piracy are that it negatively impacts the creators, artists,
and industry by reducing the revenue brought in by a creation while the unseen consequences of
media piracy are more positive, allowing consumers to allocate that money elsewhere and by
acting as a driving force within the media industry.
Copyright and patent are easily defined as in the following way; “a copyright gives its
owner an exclusive right to copy, publish, or create "derivative works" from the original. A
patent allows its holder to prevent others from making use of the patented invention” according
to McCullagh and were legal rights designed to protect intellectual property from being stolen.
The most frequent form of piracy, and what will be discussed now, is the illegal copying of
music, movies, and games in multiple ways, the most common being free, illegal downloads
from the internet. Intellectual property is defined as “the set of products protected under laws
associated with copyright, patent, trademark, industrial design, and trade secrets” (Harenber).
Because piracy is dealing with a nontangible item, the basic rules of economics do not apply and
must be looked at differently than any other property.
The negative consequences of media piracy are frequently addressed and generally state
that piracy deprives the creators and artist of their income. With the free, illegal downloads of
media there is a decrease in the sales of legitimate products that lead to decreases in the revenue
of the creators or producers. Because digital copies are cheaper and more widespread than their
tangible counterparts, although they are both of the same quality, an epidemic of piracy will end
all motives to create valuable content. Many software companies are in the process of creating
new technologies that will help to reduce the risk of piracy and, accordingly, reduce the cost of
the product to the consumer by diminishing losses due to piracy (McCullagh).
Piracy can be justified by many with the argument that the owners bring in an
exceptionally large profit that is not always warranted or that some companies do not always
make their products readily available for legal purchase. Pirated media also does not deprive
others of any material; the enjoyment of a pirated song does not deprive anyone else of their
copy (McCullagh). Another factor to take into account is the trade-off value of some of the
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products. Because many of the items that are frequently pirated cannot always be priced
efficiently, many buyers do not find the trade-off value to be worth it. There is a specific term
used for these kinds of goods, “nonrivalrous comsumption”. Economists use the vertical addition
of demands to price these items which takes “the prices individual consumers are willing to pay
and sums them to arrive at an overall demand for the intellectual product” (Harenber).
Some of the unseen benefits that can some from media piracy include cost, availability,
safety, possible profit, and a positive impact on the entertainment industry itself. Many of the
pirating software consumers can buy, while they are expensive purchases, can end up costing
less in the long run by saving the consumer money by illegally pirating the media. Internet
downloads are also much more easily found than finding the same media in stores, meaning it is
much easier to download the illegal software or media online than attempting to find the specific
retailer that sells the desired good. Pirating is a also desirable crime to most because it doesn’t
feel like a crime, there is complete anonymity and the safety of one’s home. With this logic
many people have trouble even thinking of this as a crime, or at least consider it to be harmless, a
“victimless” crime. This pirating software also allows users to make a possible profit from the
stolen media, simply by selling it directly, such as street vendors (Harenber).
Piracy can also, in a way, be a driving force for the music industry and can actually
increase media sales. In studies done by Paul Belleflamme and Martin Peitz, it has been shown
that there can actually be positive effects of piracy on the industry. By allowing these illegal
downloads, consumers can easily sample that particular media and may prompt them to buy a
legitimate copy. On the same note, consumers who enjoy the good (whether legally or not) bring
attraction to that good which benefits the content producers. Finally, piracy can increase the
demand for complementary goods and the content producers are able to benefit indirectly from
the value that consumers place on that pirated good.
Media piracy is an example of the broken window fallacy because, much as Hazlitt
mentioned the seen and unseen effects of an action in “Economics in One Lesson”, piracy holds
both seen and unseen consequences. The “seen” effects of piracy are the revenue losses of the
media companies and the financial importance of a goods legal distribution. The “unseen” effects
of piracy is the benefit to the consumer, sparing the financial expense of buying every media
good, and being able to sample a good and lend support in other ways that will still benefit a
company. Because there is both a “seen” and “unseen”, this particular action is a prime example
of an economic fallacy and is only a narrow viewpoint of all the effects of piracy.
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Figure 1: Intellectual Property Growth 1930-2016
This graph was taken from FRED
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Figure 2: Media Piracy Growth in the USA 1978-2000
This graph was taken from Online Piracy
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References
Harenber. "Online Piracy." RSS. N.p., 17 July 2011. Web. 04 Sept. 2016.
<http://piracy.web.unc.edu/factsfigures/>.
McCullagh, Declan. "The Struggle Over Intellectual Property." Declan McCullagh,. Library of
Economics and Liberty, 6 Aug. 2001. Web. 04 Sept. 2016.
<http://www.econlib.org/library/Columns/McCullaghintprop.html>.
Merriam-Webster. Merriam-Webster, n.d. Web. 04 Sept. 2016. <http://www.merriamwebster.com/dictionary/piracy>.
"Online Piracy." RSS. OASIS, Jan.-Feb. 2011. Web. 04 Sept. 2016.
<http://piracy.web.unc.edu/factsfigures/>.
US. Bureau of Economic Analysis, Shares of Gross Domestic Product: Gross Private Domestic
Investment: Fixed Investment: Nonresidential: Intellectual Property Products
[Y001RE1Q156NBEA], retrieved from FRED, Federal Reserve Bank of St. Louis;
https://fred.stlouisfed.org/series/Y001RE1Q156NBEA, September 4, 2016.