How Does Digital Piracy Harm Firms?: An Analysis of Internet Search Frequency

Abstract

Despite government policies targeting it, digital piracy remains rampant. Academic research has not reached a consensus on whether piracy is harmful to the affected firms or industries. This study constructs a new piracy index based on internet search frequency in China that reflects the country’s piracy levels. We find that piracy behaviors are countercyclical, concentrated during weekends, and more frequent among male users and those aged between 20 and 49 years. Piracy varies across regions; we find the highest piracy search frequencies in the Guangdong province in the south of China, but the search frequency per user is the highest in the Ningxia province. Finally, we conclude that piracy mildly reduces firms’ profitability, but significantly reduces innovation in the affected industries, and the evidence is robust to several specifications.