Are Pirates Really That Bad?

[Prometheus]

I'm interested in the economics, not the ethical or legal issues, of the idea that purveyors of counterfeit name brand merchandise (who sell their fakes at a steep discount over the real thing) are bad for the economy because the companies whose products they imitate pass their loss on to the consumer in the form of higher prices (I read an opinion to that effect in a newspaper article, but I can't find the original article now).

Is this true? Shouldn't their actual effect on market prices be the opposite? Is there a substantive difference between a counterfeiter and a legitimate competitor who figures out a way to make and effectively market an equivalent product of at least the same quality with a lower price? Shouldn't both cases result in the original manufacturer being forced to reduce prices in order to stay in business?

I'm not trying to suggest that pirates are good people, or anything like that. I'm just interested in how the economics works.

[Wolfman]

Shouldn't their actual effect on market prices be the opposite? Is there a substantive difference between a counterfeiter and a legitimate competitor who figures out a way to make and effectively market an equivalent product of at least the same quality with a lower price? Shouldn't both cases result in the original manufacturer being forced to reduce prices in order to stay in business?
That is true if you consider only the cost of actually producing the item in question. But what about the initial costs for research and development? Some examples:

* A movie studio spends hundreds of millions of dollars to produce a blockbuster movie. They need to recover those funds in order to make a profit. A person selling pirated videos does not need to recover any of those costs, he needs only to cover the costs of making cheap copies. If the movie studios sell their movies at the same price as the marketer, they cannot recover their initial investment. So, in order to become "competitive", the only option they would have would be to significantly decrease how much money they spend on making movies -- resulting in poorer quality movies. Now, a lot of people may consider that this is not important, but it illustrates an important issue -- that in many cases, such "competition" (between legitimate producers and pirates) must result in either decreased quality of the legitimate product, or increased price for the legitimate product.

* Your arguments would hold true if both parties were on a generally level playing field; that is, the relative costs on both sides are at least comparable. An example of this would be luxury items like purses and shoes. The initial cost (research, development, etc.) really is not that terribly high; the high price tag is because of the brand name, not because of high initial investment costs. The same product can be produced at the same quality even by the original manufacturer, and still yield profits.

But in other areas, where the initial costs for the legitimate producer are far higher than those for the pirate, your argument is not true. The only way for the original company to compete is to either increase the cost of their product (which is counter-productive, in that it drives even more consumers to buy the counterfeit product), or to decrease their initial costs in developing that item...which means poorer quality, slower development, etc.

[AgeGap]

Also if pirates had free rein and flooded the market with certain designed goods, no one will want to have an expensive original, for fear that others may think it fake.
I am not a fashionista or a big movie watcher so if the markets vanished overnight I would not realise.
Designer goods cover all goods and if drug companies stopped R&D it would have a negative effect on society as a whole. Also look at improvements made in automotive safety.

[jmontecillo01]

I don't know the answer to your question regarding impact to economy but:

I have an illness that requires constant medication. My medication (actual) is twice or even triple the prices of generic ones, which achieves the same purpose.

I don't know why there is a difference in price, but I am happy about it.

[Wolfman]

I don't know the answer to your question regarding impact to economy but:

I have an illness that requires constant medication. My medication (actual) is twice or even triple the prices of generic ones, which achieves the same purpose.

I don't know why there is a difference in price, but I am happy about it.
This is a good example of where there can be big conflicts on both sides.

Unlike things like purses or video games, many of the drugs that are at issue are necessary...people need those drugs. But the cost may be much higher than they can afford, meaning either that they can't have them, or that they have to put themselves significantly in debt to get them.

So the generic, cheaper drugs are a godsend. And certainly, its hard to argue that a person should be restricted from life-saving medications simply because they can't afford it (we'll cure the rich, but not the poor).

But the companies that are producing those generic medicines did not do all the research and development that were necessary to develop them in the first place.

The reality is that by far the majority of the 'miracle drugs' we are trying to find today -- cures for cancer, cures for AIDS, cures for the common cold, etc. -- require the investment of hundreds of millions of dollars. Not just for research, but for years (even decades) of testing those products, and refining them, to be sure that they are safe for human consumption.

So tell me. How many of those drug companies do you think are going to invest hundreds of millions of dollars to research a drug that they won't be able to even start selling for at least a decade, if they know that as soon as they start selling it, somebody else (who has not invested a cent in research or development) will just copy it and sell it at a lower price?

[jmontecillo01]

So tell me. How many of those drug companies do you think are going to invest hundreds of millions of dollars to research a drug that they won't be able to even start selling for at least a decade, if they know that as soon as they start selling it, somebody else (who has not invested a cent in research or development) will just copy it and sell it at a lower price?

Correct me if I am wrong here. I am trying to compare a different scenario.

When Fujitsu and Hitachi released their operating systems that were compatible with IBM's hardware and OS, the two companies (Fujitsu and Hitachi) had to pay royalties to IBM which amounts to million of dollars.

Does the same rule apply to companies that produces medicines?

Also, isn't it that research is normally funded by the gov't or private individuals/companies(e.g Gates's Foundation).

[Foolmewunz]

I don't know the answer to your question regarding impact to economy but:

I have an illness that requires constant medication. My medication (actual) is twice or even triple the prices of generic ones, which achieves the same purpose.

I don't know why there is a difference in price, but I am happy about it.

Generic pharmaceuticals don't qualify as pirated. There are companies in India and China who are actually pirating (including the logo) popular/expensive prescription drugs. But no one should ever buy them.

The generics that are available freely on the market and at your pharmacy are drugs that are produced legally and contain the same ingredients and dosage as the name brand. The manufacturers of the name brands are protected by patent for only so long, but they will continue to sell them if they've cut themselves a sufficient market share. If they're prescription, though, most health plans will audit the physicians to see if they're shunning proven generics. (In the past, and it somewhat continues, the pharmaceutical companies dole out a lot of favors for physicians in order to get them to prescribe the name brand.)

It's the non-prescription that are interesting. You can get generic Ibuprofen for about a quarter of the price of Motrin or Advil. Ditto Tylenol and even Aspirin. They're all legal to knock-off now, and the only reason anyone buys the name brands is the marketing/advertising.

The impact of the type of pirated goods discussed in the OP depends on to just what extent they're pirated. There's a brand over here that is rather popular (and getting kind of expensive), Polo Club. It's an absolute ripoff of Polo - by Ralph Lauren, but they changed the logo enough and were selling at 30/45% off of Polo brand merchandise. The quality is okay. So is this pirating or just smarmy yet good business? I don't wear logos, generally, so to me this is fair game. Their original intent was to confuse the buyer but they now have their own market, and they were merely "riding Ralph's coattails", so to speak.

On the other hand, I have a friend who's in the kitchen gadget/housewares business, and they do a lot of trade with wine fanciers. They developed and patented a corkscrew and on a trip to Japan were surprised to see it in a store they didn't have on their account list. When they enquired, thinking they'd bought it from a distributor, it turned out it was made in Guangzhou, but had not only their trademark on it, but the patent number and everything - down to the printing on the packaging. They tracked the guy down and told him to cease and desist, and he just said, "No." If Customs in any country catches the shipment, it'll be confiscated, but it's a perfect knockoff and their name isn't big enough to do anything about it. (And the authorities in South China, to date, refuse to do anything about it.)

The real knockoff trade over here is quite amazing. You can get knockoff Coach, Louis Vuitton, Gucci, etc.... for maybe $20/30 (US), versus $400 for the originals. Some of them (notably the Coach) appear to be coming out the back door of the Coach factory*, because they're indistinguishable. (Equally likely, someone just copied the designs and uses a high enough quality factory to produce them, that they can copy the stitching and detail work.) Is this fair/right? No. The designs and the merchandising to build up their brands cost these people a lot of money. Just think of the cost of paying a designer in Italy to come up with a nice looking purse, versus the third row engineer in China who copies it. The former probably makes about 150K a year, and the latter about 7K. Advertising? Gucci pays out millions a year. The knockoff guy? Zero. Etc....

*Actually there are a lot of just plain black market items over here. People bribe the factory line foreman and you'll find 500 pairs of actual Levi's on the street for about three days.

Oh, and if you want a ten dollar Rolex, we can still find 'em. They'll fool no one who knows watches, but they're fun conversation pieces. A couple of guys in my company have a real pro knockoff artist for watches. You bring him a magazine ad for Tagheuer or Rolex or Patek Philippe, and he can make it, and they're nearly indistinguishable, cosmetically, from the originals. It won't be ten dollars, though. It'll run you about two hundred, but he's an honorable pirate - you can bring it back for repairs! The thing is over here that knockoff watches are so common that many people won't spring for the original. As mentioned above, your friends don't believe you spent ten thousand bucks for a watch, anyway - they think you got it in the back alleys of Shenzhen.

[Foolmewunz]

Correct me if I am wrong here. I am trying to compare a different scenario.

When Fujitsu and Hitachi released their operating systems that were compatible with IBM's hardware and OS, the two companies (Fujitsu and Hitachi) had to pay royalties to IBM which amounts to million of dollars.

Does the same rule apply to companies that produces medicines?

Also, isn't it that research is normally funded by the gov't or private individuals/companies(e.g Gates's Foundation).

The companies that produce legitimate generics wait for the patents to expire. The big boys hope they make back their original investment during the period when they're protected and can still sell enough by market penetration afterwards.

As to research, it's sometimes the case, but actually there are a lot more huge pharmaceutical companies funding university and private lab research than foundations or government entities.

ETA: Here's a good "generic" article on the subject.
http://www.medicinenet.com/script/main/art.asp?articlekey=46204

[Ethan Thane Athen]

Couple of comments:

Knock-off brand clothing, doesn't bother me personally in the slightest as I wouldn't buy the original, or the copy and people who shell out over the odds because of the label on an item of clothing are just plain daft IMHO. Someone's name on something adds no value whatsoever as far as I'm concerned, if you can get the same / similar quality with no 'name' for less money I really don't understand why you wouldn't...unless you're a vacuous sheep who buys into a particular label because people tell you, you should. I used to get people trying to take the mickey at school because I didn't wear the 'in' trainers, to which the easy response was 'Yeah, but who won the cross-country guys? Guess you should all be wearing my cheap trainers really!'.

Downloading music - huge smokescreen by the record labels to cover up the fact that sales have been dropping for years due to increased competition in the form of video games etc..and that the music's crap (although that may be just me being an old git ;o). Only independent study that I remember reading indicated that over 90% of downloads are of 'old' music (some of which wasn't easily available to buy legitimately) so should have negligable impact on current 'chart acts'. Anecdotally (ie within my circle of contacts) downloading is often done to try out a band before investing money - if you like the non-trendy stuff I like it's often the only 'free' way of listening to the music as they never play it on the radio (though internet radio and the band's websites themselves are starting to close this gap). So a download could well lead to people buying stuff from a band they'd never have invested in without it - like an extension of borrowing a cd from a friend (equally against copyright law but is there anyone who hasn't done it?), getting to like it and so buying your own copy.

Films - bit tougher this one but I tend to think piracy could be virtually wiped out if the studios dropped their prices. A large scale produced DVD costs about 4p to manufacture so there's a hell of a mark-up to sell it for the British rip-off price (that's another topic!) of £19.99. Sell it for a tenner and loads more people will buy it rather than going without, hiring it, or waiting ages to download then burn it. Also know plenty of people who get dodgy copies so they can see the film early but still buy the genuine dvd when it comes out so again, actual impact is uncertain.

[bruto]

While I'm not doubting that piracy is harmful, I think some businesses, such as the music industry, are drastically inflating their estimate of the harm done by the assumption that every song or disk pirated is a substitute for one that would have been purchased from them at retail prices. I'm sure there's still some real harm done, but I think some industries would be better off trying to figure out how to play the new technology and to give customers something that is worth buying at a price worth paying, rather than trying to cripple their own product with DRM and rootkits and whatnot.

Let us not forget that if Disney had had its way in the 80's, home video recorders would be illegal. but.....(e.t.a. quote removed because it turns out to have been stale, so I will just add that) they make a lot of money on that business now!

[Wolfman]

Let me take this and offer an alternate spin on it.

Granted, industries like the movie industry and music industry are not going to garner a terribly great amount of sympathy in general. But allow me to present another perspective on this.

Pirates -- whether they be video pirates, music pirates, etc. -- have done absolutely nothing in producing the final product being sold. They have not spent any money to make it; they have not taken any time to develop it; they have spent nothing on marketing; etc.

In fact, the most talentless do-nothing hack on the face of the planet could relatively easily copy movies or music, burn it onto a CD/DVD, and sell it.

Now, the arguments in regards to movie studios or the music industry generally goes along the lines of "they don't deserve to make so much money", or similar arguments. They are charging too much for their products.

But if it is true that they don't deserve to make such profits, when they are the ones who've taken a significant financial risk to produce it (don't forget that for every movie/song that they make a killing on, there are many others that they lose money on)...

...then by what twisted, paradoxical argument can it be argued that some talentless hack who could not make a movie/song if his life depended on it, and who has taken no financial risk, nevertheless has some sort of 'right' to copy these products and profit thereby?

I remember a discussion I had with one of my students back when I was teaching in university here. He was part of the underground music scene, and very much a proponent of pirating music. He was proud of his collection of pirated CDs, and would pontificate endlessly about how "music belongs to everyone, nobody has the right to control it and prevent others from buying it", etc. He had a band that performed occasionally, so I showed up at one of his shows, with a stack of 20 CDs that I had burned, copying a CD that he and his band sold at their concerts. I sold mine for half the price of theirs, and as a result, they basically sold nothing that night. He was so pissed off with me for doing so. Turns out that his high-sounding principles of "music belonging to everyone" only applied to other people's music.

This whole "pirated music/movies forces the music/movie industry to lower their prices" is a bunch of rubbish. Let us assume a world in which there are no pirated products whatsoever. Then prices are set according to supply and demand. If the companies charge prices that are too high, people will not buy them. The only reason that companies can charge higher prices is because consumers are willing to pay those prices! And if consumers want lower prices, all they have to do is stop paying those prices.

But you see, if there are no cheap pirated copies to rely on, people will not stop paying those inflated prices. Despite the fact that neither music albums or movies are not in any way necessary for their living, they nevertheless refuse to live without them, and will pay whatever ridiculous price the companies are offering.

Pirated movies and songs have nothing to do with ethics, or 'fair play', or keeping the music/movie industries accountable. It has to do with us being unwilling to go without these things, and just using the existence of pirated products as a convenient excuse to do so.

[Prometheus]

But you see, if there are no cheap pirated copies to rely on, people will not stop paying those inflated prices. Despite the fact that neither music albums or movies are not in any way necessary for their living, they nevertheless refuse to live without them, and will pay whatever ridiculous price the companies are offering.


When I wrote the OP I wasn't considering music/movies; I actually had in mind knock-off designer and name-brand clothing and shoes. I do concede that piracy is wrong, nevertheless. But I'm still trying to discern exactly what economic effect it really has. If the part of your argument I quoted above is correct, that would seem to support my original hypothesis, wouldn't it?

[Prometheus]

The real knockoff trade over here is quite amazing. You can get knockoff Coach, Louis Vuitton, Gucci, etc.... for maybe $20/30 (US), versus $400 for the originals. Some of them (notably the Coach) appear to be coming out the back door of the Coach factory*, because they're indistinguishable. (Equally likely, someone just copied the designs and uses a high enough quality factory to produce them, that they can copy the stitching and detail work.) Is this fair/right? No. The designs and the merchandising to build up their brands cost these people a lot of money. Just think of the cost of paying a designer in Italy to come up with a nice looking purse, versus the third row engineer in China who copies it. The former probably makes about 150K a year, and the latter about 7K. Advertising? Gucci pays out millions a year. The knockoff guy? Zero. Etc....

But isn't the Italian company also likely to be using a Chinese factory to produce the designs? Shouldn't the pressure provided by pirates just force the legitimate company to spend less on advertising/marketing (and also thereby reduce the attractiveness of the brand to future pirates)? Doesn't this make the whole market more efficient by knocking out artificial costs that should not have been part of the process in the first place? Or, alternatively, does all of this count as an argument against globalization?


*Actually there are a lot of just plain black market items over here. People bribe the factory line foreman and you'll find 500 pairs of actual Levi's on the street for about three days.


You remind me of my time teaching in Korea, where the same thing is quite common. In fact, the father of one of my students owned a factory that produced athletic shoes for one of the big name brands. He routinely manufactured double whatever his legitimate customer ordered and sold the excess at a discount on the black market.

[NobbyNobbs]

And I came in here all ready to defend those guys with parrots and wooden legs who sail the high seas.


Darn.

[bruto]

When I wrote the OP I wasn't considering music/movies; I actually had in mind knock-off designer and name-brand clothing and shoes. I do concede that piracy is wrong, nevertheless. But I'm still trying to discern exactly what economic effect it really has. If the part of your argument I quoted above is correct, that would seem to support my original hypothesis, wouldn't it?I've heard arguments both ways, including the suggestion that such things as knockoff watches and handbags do little to harm the originals. But I think it may depend on what is being knocked off, and how difficult it is to discern. Nobody who buys a handbag from some guy on the street is expecting it to be a real Gucci, and realistically, if cheap fake Guccis weren't available, it's not likely you'd get a real one instead of another cheap handbag with an honest label. Commercial piracy of intelletual property is a bad thing, but I think the music and movie industries have addressed it poorly, and their willingness to cripple their products, harass innocent people with nuisance lawsuits, and to deprive legitimate users of fair use makes it difficult to argue their case. But in addition, counterfeiting of things like drugs, automobile parts, and other consumer goods can be not only dishonest and undercut legitimate manufacturers, but can be dangerous and even deadly. I'd like to see more information on the economic consequence of the kind of piracy that tends to go unnoticed, because I really don't know what the damage adds up to.

[Foolmewunz]

[QUOTE=Prometheus;3216537]But isn't the Italian company also likely to be using a Chinese factory to produce the designs? Shouldn't the pressure provided by pirates just force the legitimate company to spend less on advertising/marketing (and also thereby reduce the attractiveness of the brand to future pirates)? Doesn't this make the whole market more efficient by knocking out artificial costs that should not have been part of the process in the first place? Or, alternatively, does all of this count as an argument against globalization?

<snip>

I didn't mean the guy who designs the process flow. I meant the creative artist (or artiste) who designs the garment, belt, or bag. True, some of those come from young apprentices in the name brand companies, but they have whole rooms(or buildings) full of actual designers who command very high salaries. That's the garment/bag company's version of R&D. The factories take the object apart and block the parts out onto patterns. That's not designing in the sense of a Chanel or Lagerfeld or D.K.

[Foolmewunz]

I like reading all the justifications for buying pirated DVDs or downloading for free.

They're just that, though. Justifications.

I know that diamond prices are controlled by a tight cartel. I think they are too expensive. Does that give me the right to take a gun into Van Cleef & Arpels and steal them? The person I then sell them to would certainly appreciate the savings, and who knows, they could develope a fondness for diamonds and then go back and buy more at legitimate retail prices.

In the words of a ditty from a bad off-Broadway show....

"Keep your hands off it. Dontcha dare touch it. You know it don't belong to you."

It's stealing. Period. If the movie makers could make back all their money in theatrical release, maybe they would sell the DVD for two bucks. But when we're thinking about ripping Star Wars, no one's considering the dozen other releases that studio had for the year that never make back their original costs.
Ditto the music. It belongs to the artists and their production companies. If they choose to sell it wholesale for nine bucks and the stores and mailorder and web outlets choose to sell for fifteen, then that's their choice. If no one buys, fine. But that doesn't mean it's okay to steal it.

[JoeEllison]

I've got no issue with personal pirating for personal use, to an extent. Reselling pirated movies and music is a whole other subject.

As far as clothing and such... frankly, I doubt it has any real impact at all. If someone is buying a $40 knockoff of a $400 pair of shoes or purse, it is probably because they would never have the money to buy the real thing, so it isn't costing the original manufacturer any money at all.

[fuelair]

Let me take this and offer an alternate spin on it.

Granted, industries like the movie industry and music industry are not going to garner a terribly great amount of sympathy in general. But allow me to present another perspective on this.

Pirates -- whether they be video pirates, music pirates, etc. -- have done absolutely nothing in producing the final product being sold. They have not spent any money to make it; they have not taken any time to develop it; they have spent nothing on marketing; etc.

In fact, the most talentless do-nothing hack on the face of the planet could relatively easily copy movies or music, burn it onto a CD/DVD, and sell it.

Now, the arguments in regards to movie studios or the music industry generally goes along the lines of "they don't deserve to make so much money", or similar arguments. They are charging too much for their products.

But if it is true that they don't deserve to make such profits, when they are the ones who've taken a significant financial risk to produce it (don't forget that for every movie/song that they make a killing on, there are many others that they lose money on)...

...then by what twisted, paradoxical argument can it be argued that some talentless hack who could not make a movie/song if his life depended on it, and who has taken no financial risk, nevertheless has some sort of 'right' to copy these products and profit thereby?

I remember a discussion I had with one of my students back when I was teaching in university here. He was part of the underground music scene, and very much a proponent of pirating music. He was proud of his collection of pirated CDs, and would pontificate endlessly about how "music belongs to everyone, nobody has the right to control it and prevent others from buying it", etc. He had a band that performed occasionally, so I showed up at one of his shows, with a stack of 20 CDs that I had burned, copying a CD that he and his band sold at their concerts. I sold mine for half the price of theirs, and as a result, they basically sold nothing that night. He was so pissed off with me for doing so. Turns out that his high-sounding principles of "music belonging to everyone" only applied to other people's music.

This whole "pirated music/movies forces the music/movie industry to lower their prices" is a bunch of rubbish. Let us assume a world in which there are no pirated products whatsoever. Then prices are set according to supply and demand. If the companies charge prices that are too high, people will not buy them. The only reason that companies can charge higher prices is because consumers are willing to pay those prices! And if consumers want lower prices, all they have to do is stop paying those prices.

But you see, if there are no cheap pirated copies to rely on, people will not stop paying those inflated prices. Despite the fact that neither music albums or movies are not in any way necessary for their living, they nevertheless refuse to live without them, and will pay whatever ridiculous price the companies are offering.

Pirated movies and songs have nothing to do with ethics, or 'fair play', or keeping the music/movie industries accountable. It has to do with us being unwilling to go without these things, and just using the existence of pirated products as a convenient excuse to do so.
I would argue for and support the pirating in exactly one situation(or related group of situations): basic - the film/tv-show is not legally available in the pirate's location. This includes any out-of-print film/tv show, any show that has a legal dispute going on, any show (in it's original form) where a legal dispute forced the removal of music/other material, any show not allowed or cut due to censorship or effective censorship, any show released elsewhere in a more complete form, any show not available because "owners" do not think there is enough money in it to be worth doing. In other words, if the owners do not choose to make it available/publish it then someone else needs to. The best pirate I know essentially started part of the market for anime in the southeast - and NOW the Japanese companies know there is a market and it can be done. That pirate no longer handles anime - Though I am told he still does Song of the South (a lesson Disney has not yet learned).

[Foolmewunz]

I would argue for and support the pirating in exactly one situation(or related group of situations): basic - the film/tv-show is not legally available in the pirate's location. This includes any out-of-print film/tv show, any show that has a legal dispute going on, any show (in it's original form) where a legal dispute forced the removal of music/other material, any show not allowed or cut due to censorship or effective censorship, any show released elsewhere in a more complete form, any show not available because "owners" do not think there is enough money in it to be worth doing. In other words, if the owners do not choose to make it available/publish it then someone else needs to. The best pirate I know essentially started part of the market for anime in the southeast - and NOW the Japanese companies know there is a market and it can be done. That pirate no longer handles anime - Though I am told he still does Song of the South (a lesson Disney has not yet learned).

Agreed. I also think copying a sporting event or local show for a friend, while technically copyright infringement, is also okay. What I was referring to was not related to these instances. (I'm in Asia and there are shows on in the UK and USA that won't be on DVD for two years, yet... many people bring copies of such for friends who are posted over here.)

[Beanbag]

When I worked for Cartier, we would handle leather repairs along with watch repairs. The quality of Cartier leather goods at that time was appalling -- it literally looked like shoe-polished cardboard, and was about as strong. We had a standing rule-of-thumb in determining which items were genuine and which were fake: if it was good quality, it was fake.

The good news was that in the last couple of years that I worked there, the company realized their leather goods were a laughingstock, and managed to completely reverse the trend and actually started producing some pretty decent items.

Beanbag

[Wobble]

I would argue for and support the pirating in exactly one situation(or related group of situations): basic - the film/tv-show is not legally available in the pirate's location. This includes any out-of-print film/tv show, any show that has a legal dispute going on, any show (in it's original form) where a legal dispute forced the removal of music/other material, any show not allowed or cut due to censorship or effective censorship, any show released elsewhere in a more complete form, any show not available because "owners" do not think there is enough money in it to be worth doing. In other words, if the owners do not choose to make it available/publish it then someone else needs to. The best pirate I know essentially started part of the market for anime in the southeast - and NOW the Japanese companies know there is a market and it can be done. That pirate no longer handles anime - Though I am told he still does Song of the South (a lesson Disney has not yet learned).

What about pirating things that are not available yet but will be in the future? I know lots of people who download TV episodes the day they are aired in the US rather than waiting for them to be shown on British TV a year or so later. Probably a lot of them would be willing to pay for a decent fast download if it was available.

[fuelair]

What about pirating things that are not available yet but will be in the future? I know lots of people who download TV episodes the day they are aired in the US rather than waiting for them to be shown on British TV a year or so later. Probably a lot of them would be willing to pay for a decent fast download if it was available.
My key covers this - if it is not available legally. Once it is that changes, until it is, fair game.:D

[shadron]

When I wrote the OP I wasn't considering music/movies; I actually had in mind knock-off designer and name-brand clothing and shoes. I do concede that piracy is wrong, nevertheless. But I'm still trying to discern exactly what economic effect it really has. If the part of your argument I quoted above is correct, that would seem to support my original hypothesis, wouldn't it?

Blending your information request with the ideas here about pirating media, consider the Baen Publishing Company. Jim Baen (before his death last year) and one of his more popular writers, Eric Flint, opened a free library of books from Baen's publishing list starting about 2001 (see http://www.baen.com/library). The reasons are detailed in some essays written by Flint on that page under the heading "Prime Palaver". After four years, Flint is still adding approximately one book a month to the freely available list, with, apparently, the continued concurrence of the publisher and the house's ownership. The movement hasn't set the publishing world on fire, but perhaps he knows something more about the business that other publishers don't.

Or perhaps vice versa.

[Prometheus]

Blending your information request with the ideas here about pirating media, consider the Baen Publishing Company. Jim Baen (before his death last year) and one of his more popular writers, Eric Flint, opened a free library of books from Baen's publishing list starting about 2001 (see http://www.baen.com/library). The reasons are detailed in some essays written by Flint on that page under the heading "Prime Palaver". After four years, Flint is still adding approximately one book a month to the freely available list, with, apparently, the continued concurrence of the publisher and the house's ownership. The movement hasn't set the publishing world on fire, but perhaps he knows something more about the business that other publishers don't.

Or perhaps vice versa.

Thanks very much for the link!

What Flint talks about (1. that--at least as far as writers are concerned--piracy is at worst a nuisance; and 2. that any form of free distribution serves to increase one's audience) is very close to the idea that I'm interested in exploring. I wonder, for instance, if a company like Nike gives away all kinds of free merchandise with their logo on it as a form of advertising, how are pirates who do distribute fakes with the Nike logo not just providing them with free advertising?

[blutoski]

I wonder, for instance, if a company like Nike gives away all kinds of free merchandise with their logo on it as a form of advertising, how are pirates who do distribute fakes with the Nike logo not just providing them with free advertising?

If you use the example of a T-shirt, there are three costs to the company:

1. the seller of the counterfeit is taking advantage of Nike's paid advertising on television.
2. the counterfeit product/saleschannel is usually of a lower quality, and the consumer will associate the brand with poor quality product. The brand is impacted, and sales will be reduced.
3. the consumer no longer needs to buy a Nike product from Nike. Demand is zero-sum, so sales are reduced.

Analogy for counterfeitting: would you like somebody to walk around town pretending to be you? If this happened would you buy their argument that you should be *grateful*? Let's say you're a plumber. What if some other plumber starts getting work pretending to be you, based on the reputation you worked hard to build?

Note: this analogy works well for trademark counterfeitting, but it's not applicable for copyright discussions.

[Bodhi Dharma Zen]

A point regarding the economy. It is said that the big companies have losses of millions and millions because of piracy practices. The argument runs in the lines of the No. of pirated products that arrive to the hands of the consumers.

Thats absurd.

Im willing to bet that NONE OF THOSE who actually buy something pirated would buy the original, maybe because they can't afford it, maybe because they would not have interest in buying it at the "normal" price or because lots of other reasons.

Now, regarding the risks of the ones who promote an original product, and so on... that's ********. They already have the money to risk, and they choose TO RISK IT. There should be no moral argument behind this. Im also willing to bet that there are MORE TALENT outside of the big bucks companies that inside them. They have a protected market, protected by the money they earn. That's about it.

[Pyrts]

I'm interested in the economics, not the ethical or legal issues, of the idea that purveyors of counterfeit name brand merchandise (who sell their fakes at a steep discount over the real thing) are bad for the economy because the companies whose products they imitate pass their loss on to the consumer in the form of higher prices (I read an opinion to that effect in a newspaper article, but I can't find the original article now).

And they make dangerous (cheap, poorly constructed) items available and gobble up the market for the better proucts. Consider them a parasite that eventually destroys the host.

Is there a substantive difference between a counterfeiter and a legitimate competitor who figures out a way to make and effectively market an equivalent product of at least the same quality with a lower price?
Heck, yes. There will be a number of differences because of the patents and trademarks issues. Also, the legit person stands behind their product if there's a problem. The pirate giggles and runs off with the money.

[Prometheus]

I
1. the seller of the counterfeit is taking advantage of Nike's paid advertising on television.
2. the counterfeit product/saleschannel is usually of a lower quality, and the consumer will associate the brand with poor quality product. The brand is impacted, and sales will be reduced.
3. the consumer no longer needs to buy a Nike product from Nike. Demand is zero-sum, so sales are reduced.


I've seen all of these arguments many times before. What I've never seen is any hard empirical evidence that bears them out. Nike is paying for the advertising anyway, and the existence of pirates does not force them to pay more for it. Often, counterfeits are of lower quality, but often they're equivalent, and sometimes they're even superior (take the example of Cartier leather goods mentioned above). And lot's of times even bad publicity just increases demand anyway. Finally, if demand is zero-sum then there's something seriously wrong with all the economics I ever learned in school.

[bruto]

A point regarding the economy. It is said that the big companies have losses of millions and millions because of piracy practices. The argument runs in the lines of the No. of pirated products that arrive to the hands of the consumers.

Thats absurd.

Im willing to bet that NONE OF THOSE who actually buy something pirated would buy the original, maybe because they can't afford it, maybe because they would not have interest in buying it at the "normal" price or because lots of other reasons.

Now, regarding the risks of the ones who promote an original product, and so on... that's ********. They already have the money to risk, and they choose TO RISK IT. There should be no moral argument behind this. Im also willing to bet that there are MORE TALENT outside of the big bucks companies that inside them. They have a protected market, protected by the money they earn. That's about it.

Without arguing whether your point of view is right or wrong, I still think it is not applicable unless one is aware of the piracy. Unfortunately, though, piracy also affects good faith purchasers, and at least for myself, I'd like to see more information on the economic and other consequences of that. It's one thing to buy a knockoff handbag, and quite another to buy a counterfeit brake master cylinder or to find too late that the CF card you put the photos of your Antarctica expedition on was a cheap fake.

[Foolmewunz]

A point regarding the economy. It is said that the big companies have losses of millions and millions because of piracy practices. The argument runs in the lines of the No. of pirated products that arrive to the hands of the consumers.

Thats absurd.

Im willing to bet that NONE OF THOSE who actually buy something pirated would buy the original, maybe because they can't afford it, maybe because they would not have interest in buying it at the "normal" price or because lots of other reasons.

Now, regarding the risks of the ones who promote an original product, and so on... that's ********. They already have the money to risk, and they choose TO RISK IT. There should be no moral argument behind this. Im also willing to bet that there are MORE TALENT outside of the big bucks companies that inside them. They have a protected market, protected by the money they earn. That's about it.

Your first part - argument from incredulity? How much would you actually be willing to bet, by the way? Will you accept names and addresses and phone numbers as references.

I work over here in the Pirateland. I handle the supply chain for many major retailers and manufacturers in both the USA and Europe. These same people who send social compliance inspectors to the factories and who would faint if they saw their own companies' products being sold from a blanket on the sidewalk for 10% of its cost, always want to hit the markets to find some good bargains for their family and friends. I'm talking people here who make six digit salaries. They can afford the Adidas pullover and it's available at a normal price at Sogo or Marks & Spencer, here. But they're not interested. They want the bargain.

I once had the legal council for a large retailer, who was over here to chase down a particularly ornery factory that was pirating their private brand jackets and sweaters, ask me where to get the best knockoff Louis Vuitton bags. The guy drives a Mercedes back in the states and has a two million dollar house!

I'll agree with you, though, that the figure is inflated. The number of people who would buy the original is not equal to the number of knockoffs sold, that is certain. (Just in the anecdotal evidence I gave above, it's apparent that many who buy are doing so only out of the fun of doing so. They may otherwise have never bought the particular item.) But the loss of sales, particularly the items that are knocked off by the original producers and are of equal quality, is still very high.

Sidebar:

In the lobby of the Brother Hotel in Taipei, there was a promotional display for shoes. They didn't steal the LA Gear name, but every color and line was identical and the brand was something ridiculous like CA Gear (I really can't recall it). The shoes were perfect - I'm sure they came out of a LA Gear contract manufacturer - the display was beautifully done, and well crafted of quality materials, and the big selling point, in five inch letters, embossed into the back of the display, was.... Made From America
They prbably spent their quarterly marketing budget on the display and then handed the promo material to a clerk to translate!

[bruto]

Your first part - argument from incredulity? How much would you actually be willing to bet, by the way? Will you accept names and addresses and phone numbers as references.

I work over here in the Pirateland. I handle the supply chain for many major retailers and manufacturers in both the USA and Europe. These same people who send social compliance inspectors to the factories and who would faint if they saw their own companies' products being sold from a blanket on the sidewalk for 10% of its cost, always want to hit the markets to find some good bargains for their family and friends. I'm talking people here who make six digit salaries. They can afford the Adidas pullover and it's available at a normal price at Sogo or Marks & Spencer, here. But they're not interested. They want the bargain.

I once had the legal council for a large retailer, who was over here to chase down a particularly ornery factory that was pirating their private brand jackets and sweaters, ask me where to get the best knockoff Louis Vuitton bags. The guy drives a Mercedes back in the states and has a two million dollar house!

I'll agree with you, though, that the figure is inflated. The number of people who would buy the original is not equal to the number of knockoffs sold, that is certain. (Just in the anecdotal evidence I gave above, it's apparent that many who buy are doing so only out of the fun of doing so. They may otherwise have never bought the particular item.) But the loss of sales, particularly the items that are knocked off by the original producers and are of equal quality, is still very high.

Sidebar:

In the lobby of the Brother Hotel in Taipei, there was a promotional display for shoes. They didn't steal the LA Gear name, but every color and line was identical and the brand was something ridiculous like CA Gear (I really can't recall it). The shoes were perfect - I'm sure they came out of a LA Gear contract manufacturer - the display was beautifully done, and well crafted of quality materials, and the big selling point, in five inch letters, embossed into the back of the display, was.... Made From America
They prbably spent their quarterly marketing budget on the display and then handed the promo material to a clerk to translate!

Slight thread drift here, but there's a cheap store in a nearby mall (not quite a dollar store, but close) that is filled with wonderfully silly near-knockoffs like that. Package and type fonts are meticulously copied, but not the names. Batteries by Toceba, tools packaged to look exactly like Stanley, but with some odd name in its place, etc. Some of the stuff is pretty hilarious, though my seive-like memory now can only remember Toceba among the near-names. Now of course in the US that's not piracy because it's so obvious, but I wonder if it fools consumers in places where the Roman alphabet is less familiar. I certainly would not recognize the difference between Toshiba and Toceba in identical Arabic script, for example.

[Wolfman]

Im willing to bet that NONE OF THOSE who actually buy something pirated would buy the original, maybe because they can't afford it, maybe because they would not have interest in buying it at the "normal" price or because lots of other reasons.
Sorry, but absolutely cannot agree with you on that.

Take pirated DVDs. I buy them regularly. The cost of a pirated DVD here is less then $1.00, which is far, far lower than the cost of buying a real one. Yeah, I can afford to buy the real thing...but I don't want to. I'd prefer to buy the fake ones and save money.

And from talking to other people -- whether they are buying pirated DVDs, or fake purses, or any other such product -- by far the majority state that they could afford to buy the real item. They don't do so simply because they want to save money.

This is a completely bogus argument, one used by people to justify such actions, but one without any real merit.

Plain fact. Movie companies, music companies, fashion companies -- they're motivated by greed. They want profits, they want money, etc. But consumers are equally motivated by greed. They don't need to see a particular movie, or hear a particular song...they can choose to not see/hear it, and pay nothing. But when they do choose to go and buy it, and they buy a cheaper, pirated version, their motivation for doing so is the very same motivation as that which drives those large corporations -- MONEY.

I buy pirated products all the time; in fact, I have literally hundreds of pirated DVDs, and have not bought a 'real' one in years. But I don't try to justify it with high-sounding moralistic arguments that what I'd doing is somehow "good for the economy" or "fighting against the abuses of the multinational conglomerates".

The reason I do it is simple. Money. Greed. I want to see these movies, I want to hear these songs, but I want to pay the lowest price possible. If a pirate offers me a better price, then I'll buy their DVD. Its as simple as that. I am selfish. So is pretty much every other person who knowingly buys pirated products.

[Wolfman]

The pro-piracy argument tends to revolve around a concept of 'entitlement'. "It is my right to see these movies", "It is my right to listen to these song", "It is my right to have this brand of purse", etc.

Nonsense.

A movie studio makes a product. You have no need to see that movie. You have complete freedom of choice not to see that movie. Your life is not going to be in any way destroyed or damaged because you did not see that movie (or if it is, you've got far more serious personal issues to deal with).

Now, if you think the movie company is charging too much money, you have complete freedom to choose not to go to the theatre, or buy the DVD. And if the prices that the movie company charges are too high for the market to sustain, nobody will go, and they'll be forced to lower their prices.

But this idea that you somehow have a 'right' to see it, so if the movie studios charge too much, then you will buy an illegal copy from someone else...sorry, but there is nothing ethical or moral about it. You are stealing (In fact, even if the movie studios were charging prices that I thought were completely reasonable, I'd still buy pirated products if it saved me money -- and so would an awful lot of other people).

As I've said above, I steal all the time. I have literally hundreds of pirated DVDs. Most of my clothes are fake versions of branded fashions. If I were really interested in protesting these products' high prices, or in forcing them to lower their prices, I would not buy such products at all. But the truth is, I just don't give a &$%#. The only thing I care about in this regard is my personal comfort and convenience. And I'm not gonna' try to wrap it up in moralistic or ethical arguments that are really just so much cow excrement.

[Wolfman]

One more point :)

The idea that piracy forces these people to lower their prices may have some merit -- for example, Microsoft software sold in China is significantly cheaper than in Canada, in direct response to the frequency of people buying pirated software. But the fact is, a pirate will always be able to charge lower prices than the legitimate manufacturer/producer, because they have lower overall costs to begin with. And as long as pirates offer their products at a lower price than those who make the legitimate product, people will continue to buy the pirated products, even if the prices are very reasonable.

The example I cited above about computer software is a good one. In China, I can buy legitimate, branded video games for $5-10 in most computer stores; compared to prices anywhere from 3-10 times higher than that for exactly the same product back in Canada. They have dropped the prices here specifically because of the problem with piracy.

But the pirated video games sell at $1-2 each. So despite the fact that the prices for the real product are very reasonable and affordable, almost nobody buys them. And the real game manufacturers simply cannot afford to sell at the same price as the pirates, because they have to cover costs for paying staff, developing the game, doing marketing, etc. All of which the pirate doesn't have to worry about.

[Prometheus]

[/I]The example I cited above about computer software is a good one. In China, I can buy legitimate, branded video games for $5-10 in most computer stores; compared to prices anywhere from 3-10 times higher than that for exactly the same product back in Canada. They have dropped the prices here specifically because of the problem with piracy.

But the pirated video games sell at $1-2 each. So despite the fact that the prices for the real product are very reasonable and affordable, almost nobody buys them. And the real game manufacturers simply cannot afford to sell at the same price as the pirates, because they have to cover costs for paying staff, developing the game, doing marketing, etc. All of which the pirate doesn't have to worry about.

I'm not at all interested in the ethical portions of your posts, as I've conceded from the beginning that piracy is wrong. But looking just at the economic aspects of it, don't you think it's odd that, if, in fact, "almost nobody" buys the $5-10 legitimate products, the companies that sell them continue to be in business at all? Also it seems unlikely to me that "the real game manufacturers simply cannot afford to sell at the same price as the pirates, because they have to cover costs for paying staff, developing the game, doing marketing, etc." The manufacturers have already sunk those costs, so if their choice is between getting the pirates' price for their goods, or getting nothing at all, it's obvious they would choose to get the pirate's price, if only to minimize their losses. So enough people must be purchasing the legitimate products at the prices they're charging for them to be making more money (or losing less) than they would otherwise.

[Prometheus]

Just a thought: Can anyone cite an example of a company that's actually been driven out of business by piracy? I'm not claiming there aren't any, I just can't think of one.

[Wolfman]

I'm not at all interested in the ethical portions of your posts, as I've conceded from the beginning that piracy is wrong. But looking just at the economic aspects of it, don't you think it's odd that, if, in fact, "almost nobody" buys the $5-10 legitimate products, the companies that sell them continue to be in business at all? Also it seems unlikely to me that "the real game manufacturers simply cannot afford to sell at the same price as the pirates, because they have to cover costs for paying staff, developing the game, doing marketing, etc." The manufacturers have already sunk those costs, so if their choice is between getting the pirates' price for their goods, or getting nothing at all, it's obvious they would choose to get the pirate's price, if only to minimize their losses. So enough people must be purchasing the legitimate products at the prices they're charging for them to be making more money (or losing less) than they would otherwise.You neglect the point that the companies I am talking about are international companies...they may lose money in China due to rampant piracy, but they make big bucks in other countries.

China-based companies who only have access to the Chinese market, on the other hand, are doing nowhere near as well. Video game, movie, etc....they're all having a hard time to make a go of it because of piracy. So I'd say that, in fact, this goes a long way towards demonstrating my argument. Companies that can sell their products in a country that has fairly strict piracy laws can be profitable. In a country where piracy is rampant, profitability is extremely difficult.

Sure, if you're a company that's making millions in the North American market, you can afford to take losses (or have minimal profits) in a country like China.

[Prometheus]

You neglect the point that the companies I am talking about are international companies...they may lose money in China due to rampant piracy, but they make big bucks in other countries.


Good point. I guess I really only had the internationals in mind. So are you saying that Chinese companies are unable to become profitable unless they sell to international markets? Isn't the government over there concerned about that?

Also, it seems to me that the equation would be a lot different for media products such as software and computer games, where there's so much more up front cost (R & D) that's not really part of the manufacturing process (stamping discs), than it would be for things like clothing and shoes. If a local company wants to produce their own brand of shoes, for instance, it's hard to see how they would become an attractive target for pirates until after they'd grown to a size where they can remain profitable despite the pirates.

[blutoski]

I've seen all of these arguments many times before. What I've never seen is any hard empirical evidence that bears them out. Nike is paying for the advertising anyway, and the existence of pirates does not force them to pay more for it.

No, but the purpose of advertising is to sell their product. If they sell less product due to counterfeiting, the fixed cost is not recovered, and this results in either lower profits or higher losses.

The other thing is that the reason they're advertising is to promote their brand. If other people impersonate them, and the brand is depreciated, the advertising will stop, and the fraudster has cannibalized his own business model. Industry-wide, if legalized, this would eliminate pretty much all branding.

This is not an unknown phenomenon in nature. A previous poster brought up the subject of parasitism, and I'd also produce the principle of cryptic colouring. There are flies that sport yellow and black bands, taking advantage of the fact that stinging insects are easily identified with similar markings. However, studies show that when too many benevolent insects adopt this cryptic colouring, that it stops working.





Often, counterfeits are of lower quality, but often they're equivalent, and sometimes they're even superior (take the example of Cartier leather goods mentioned above). And lot's of times even bad publicity just increases demand anyway.

Possibly. But two concerns:

1. that there is occasionally good quality counterfeitting is irrelevant. Consider my identity theft example. Does somebody have the *right* to pretend they're you, they *might* be a good little fraud? Do you leave your doors unlocked because some people who wander into your house *may* actually do some household chores?

It's also hard to accept that higher quality will be the rule. If ACME produced better quality, they would label their shirts as such to attract customers back to their product line. The truth of the matter is that they're eschewing accountability.

2. when somebody else causes 'bad publicity,' by pretending they're you, it's criminal. Impersonation is a serious crime. Again, consider the identity theft example.





Finally, if demand is zero-sum then there's something seriously wrong with all the economics I ever learned in school.

It's entirely consistent with what I've learned. Look up the words "substitutability" and "crowding out". When people go shopping for a stereo system, and they find two that suit their needs, they don't buy *both*. If I find 100 T-shirts with Nike logos that suit my needs, I'm not buying 100. I optimize within my budget. The cheaper ones substitute for the expensive ones *all things being equal*. If they have the identical branding, then the consumer uses this as a guideline for value. The economic value of branding is its relative standardization of quality.

Part of the cost of quality is taking responsibility for underdelivering. Here's where the counterfeitter deals with externalities. If their product is inferior, the customer is blaming the brand owner, not the counterfeitter. The counterfeitter is transferring a cost to the brand owner without his consent. They are eschewing accountability for inferior product.

[blutoski]

Good point. I guess I really only had the internationals in mind. So are you saying that Chinese companies are unable to become profitable unless they sell to international markets? Isn't the government over there concerned about that?

Not foreign brands. China's a mercantilist state economy, heavily dependent on export of manufactured goods, rather than developing a domestic economy.

Remember: they consider themselves to be competing not with US companies, but the US 'system'. They will defend their brands to the death, but are not very interested in defending US properties. Looking the other way while US companies get ripped off is an extension of the cold war.

We saw this in South Korea when I was young: the government was extremely militant about Samsung knockoffs, but not very motivated to move on "Pineapples" (fake Apple computers).

Things are a little different in the ex-Soviets (I'm from Lithuania) in that there was a period in the '90s when brand enforcement was ignored. Pretty soon, the consumer industry spiralled down to economic shrinkage, because shoppers had no confidence in their purchases. For example, I was asked to bring a bucket of Tylenols for my relatives, because all the "Tylenols" available in the regular stores could not be depended on to actually contain active ingredient.

This is related to the cryptic colouring example I brought up earlier: once the consumer (a bird in this case) realizes there's no real way to tell if you've got the actual product or a poor substitute, they have to choose between giving up food (this is what happened in Lithuania) or getting stung a lot. Once bitten; twice shy.





Also, it seems to me that the equation would be a lot different for media products such as software and computer games, where there's so much more up front cost (R & D) that's not really part of the manufacturing process (stamping discs), than it would be for things like clothing and shoes. If a local company wants to produce their own brand of shoes, for instance, it's hard to see how they would become an attractive target for pirates until after they'd grown to a size where they can remain profitable despite the pirates.

The big 'investment' for garments, perfumes, &c, is the advertising. If counterfeitters crowd out the brand owner's sales, the advertising becomes a worse and worse investment, until it does not recover its cost. When that happens, the company simply stops promoting prouduct in the weak market. At that point, overall sales decline for all sellers, because the market is not being stimulated.

[bruto]

The big 'investment' for garments, perfumes, &c, is the advertising. If counterfeitters crowd out the brand owner's sales, the advertising becomes a worse and worse investment, until it does not recover its cost. When that happens, the company simply stops promoting prouduct in the weak market. At that point, overall sales decline for all sellers, because the market is not being stimulated.

This last bit brings up the question (just thinking out loud really) whether there is some magical balance of piracy that adds glamor to the real product (i.e. it makes it clear that it is a glamor product, and worth knocking off) while not undercutting the sales to that product's true clientele?

[OldTigerCub]

To answer the question in the title of the OP, yes, the Pirates are bad...very very bad...with a record of 68 wins and 94 losses they were the worst baseball team in the league this year.:mad:

[Wolfman]

Not foreign brands. China's a mercantilist state economy, heavily dependent on export of manufactured goods, rather than developing a domestic economy.That is at least partly true when you are talking about manufactured goods. But:

The Chinese gov't very much wants to develop its own movie industry, music industry, etc. But piracy here is so rampant that that is extremely difficult to do, and thus far the gov't has not implemented measures anywhere strict enough to bring it under control. That's not surprising when one considers the huge size of the country, and the numerous problems/challenges it faces -- appointing enough police just to chase down counterfeiters is rather low on their agenda. So for the time being, these industries in China will be crippled, and have a very difficult time to compete, unless they are able to make products that will have a market outside of China.

[Wolfman]

This last bit brings up the question (just thinking out loud really) whether there is some magical balance of piracy that adds glamor to the real product (i.e. it makes it clear that it is a glamor product, and worth knocking off) while not undercutting the sales to that product's true clientele?
If there is, then A) it would be virtually impossible to implement a system whereby pirates sold only at the level that increased glamor without undercutting sales. Pirates are in it for the same reason as the original company -- to make money -- and they'll sell as much as they can. And B) if there really is such a benefit, the companies that make these products will simply make "pirated products" a part of their overall strategy (that is, the products will not really be pirated, they'll be made with the knowledge and assistance of the company, but marketed to appear to be pirated).

[Prometheus]

This last bit brings up the question (just thinking out loud really) whether there is some magical balance of piracy that adds glamor to the real product (i.e. it makes it clear that it is a glamor product, and worth knocking off) while not undercutting the sales to that product's true clientele?

I wonder about this also. If this sort of effect exists, it certainly cannot be counted on for most sorts of products, but there might be some cases where it does apply. How about, for instance, the previously mentioned fake Rolex watches. There are probably more fake Rolexes sold on the streets of NYC every day than Rolex sells genuine watches in a year. But none but the very stupidest of the street vendors' customers believe they are actually getting the real thing, and I doubt that the brisk business in fakes has done much at all to harm Rolex's bottom line.

Another possibility, and one that might apply even with non-glamor items, is with things like logo T-shirts, where the T-shirt is not itself the genuine company's primary business. For instance, Coca-Cola sells all sorts of branded "collectible" junk, and while the existence of fake Coca-Cola merchandise may be a big concern to collectors and collectibles dealers, I don't think it hurts Coke in the slightest, and may serve only to advertise their core business even further.

[Foolmewunz]

This last bit brings up the question (just thinking out loud really) whether there is some magical balance of piracy that adds glamor to the real product (i.e. it makes it clear that it is a glamor product, and worth knocking off) while not undercutting the sales to that product's true clientele?

In the case of the high-end watch knock-offs, I'd say this is true. But I mean "high end" originals, not the instance I mentioned earlier of the guy in Taiwan who does incredible knockoffs, but charges relatively high prices.

If you ever get to Southeast Asia or China, have a look at the ten dollar Rolex. It would fool no one. And Rolex has never lost a sale to someone who's bought one of those pieces of junk. (Back in '86, I remember asking the knockoff salesman, why one watch was 300 baht and the other 400, he pointed to the printing that said "crystal"... so he was charging higher for what would have been a higher priced Rolex if it was real, but it was the same crappy product.)

The Rolex people did gain, and still gain a certain cache from being the target of the most knockoffs. The logic is the same as you've stated. And, again, no one buying a ten buck Rolex is about to go out and buy a 10,000 buck one.

In the case of Rolex and such, it's not just a case of being able to afford it, but being WILLING to afford it. I just see no reason, unless you're AntiqueHunter and deal in watches as a hobby and for a living, to spend ten grand or more on a watch.

[bruto]

If there is, then A) it would be virtually impossible to implement a system whereby pirates sold only at the level that increased glamor without undercutting sales. Pirates are in it for the same reason as the original company -- to make money -- and they'll sell as much as they can. And B) if there really is such a benefit, the companies that make these products will simply make "pirated products" a part of their overall strategy (that is, the products will not really be pirated, they'll be made with the knowledge and assistance of the company, but marketed to appear to be pirated).I'm sure you're right in terms of strategy and intention as well as sustainability, but just wonder if there's some accidental point of resonance there. Of course for it to be sustained would take a kind of cooperation neither participant is likely to allow, given the parasitic nature of piracy.

[Prometheus]

No, but the purpose of advertising is to sell their product. If they sell less product due to counterfeiting, the fixed cost is not recovered, and this results in either lower profits or higher losses.

The other thing is that the reason they're advertising is to promote their brand. If other people impersonate them, and the brand is depreciated, the advertising will stop, and the fraudster has cannibalized his own business model. Industry-wide, if legalized, this would eliminate pretty much all branding.

Sure--if they actually sell less product. But if a company spends a bunch of money on advertising and then their sales go down, they're likely to reassess their business model.
This would certainly be a problem if rampant piracy is totally out of control, as it seems like it might be within China. However, if there's just a persistant low-level of piracy, a company's sales should still go up in response to advertising (so what if they might have gone up even more without the pirates? They also might have gone up even more if lot's of other things were different as well, but a competent business will just take reality into account in formulating a business plan).


This is not an unknown phenomenon in nature. A previous poster brought up the subject of parasitism, and I'd also produce the principle of cryptic colouring. There are flies that sport yellow and black bands, taking advantage of the fact that stinging insects are easily identified with similar markings. However, studies show that when too many benevolent insects adopt this cryptic colouring, that it stops working.


In other words, the more counterfeiters there are, the less successful counterfeiters will be. How does this apply. The genuine article, stinging insects still have their stingers and their success strategy still works just as well as it ever did.


1. that there is occasionally good quality counterfeitting is irrelevant. Consider my identity theft example. Does somebody have the *right* to pretend they're you, they *might* be a good little fraud? Do you leave your doors unlocked because some people who wander into your house *may* actually do some household chores?...

....2. when somebody else causes 'bad publicity,' by pretending they're you, it's criminal. Impersonation is a serious crime. Again, consider the identity theft example.


This is irrelevant to me, because I'm not interested in the ethical questions involved, only the economics.



It's also hard to accept that higher quality will be the rule. If ACME produced better quality, they would label their shirts as such to attract customers back to their product line. The truth of the matter is that they're eschewing accountability.


I don't think it needs to be the rule. Suppose, for instance that lot's of fake Nike shoes of inferior quality were all over the place, and lot's of people were buying them because their so cheap and the purchaser's only want the cool swish logo to sport in front of their friends. As the cheap shoes fall apart after a few weeks, some of the people who bought them might be dumb enough to think that they bought genuine stuff and that Nike sucks, but some are gonna realize they made a mistake, and think all the more highly of the genuine article by comparison to the cheap knock-offs.



It's entirely consistent with what I've learned. Look up the words "substitutability" and "crowding out".


Thanks for the pointer. I'll look those terms up.


When people go shopping for a stereo system, and they find two that suit their needs, they don't buy *both*. If I find 100 T-shirts with Nike logos that suit my needs, I'm not buying 100. I optimize within my budget. The cheaper ones substitute for the expensive ones *all things being equal*.


Okay, but it's been my experience that whenever an argument uses the phrase, "all things being equal," it's usually a case where all things are never going to be equal, so the argument only applies in theory and not in practice. For instance, I don't think it's ever the case that a manufactured product has a fixed number of potential sales that will not increase under any circumstances. Nike is not dealing with a situation where there's only me going to buy a T-shirt and they're then in competition with the pirates for my business. In actuality, when I buy a logo T-shirt it's nearly always an impulse purchase that has little to do with any conscious calculation. I submit that I'm a lot more likely to spontaneously purchase a shirt that says Nike on it if in the past few days I happen to have seen a lot of people wearing Nike logos, regardless of whether the products they're wearing were real or fake.