Regulating Digital Piracy Consumption

Regulators across the globe have imposed penalties on consumers for digital piracy consumption. Contrary to expectations, however, digital piracy consumption has continued to grow since the inception of these regulations. We develop a simple model of competition between a copyright holder and a pirate firm to offer a plausible account for this observation. The core of our idea is to endogenize the pirate firm's strategic investment in anti-tracking technologies that help piracy users evade a regulator's penalty. We find that as the regulator raises penalty against piracy users, piracy consumption can surprisingly increase after decreasing first. Relatedly, the copyright holder and the society may suffer from tighter regulation. We also identify complex non-monotonic long-run effects of piracy consumption regulation on the copyright holder's incentives to create better content