We investigate how a firm selling a newly developed digital product is affected by piracy in terms of pricing, quality disclosure strategy and profitability. We consider a monopolistic digital-good firm and the quality information of its product is unknown to prospective customers. The firm can choose to disclose the quality information at a nonzero fixed cost to resolve the quality uncertainty confronting consumers. We unexpectedly find that, in equilibrium, the firm's profit may strictly decrease with the difficulty or cost of pirating when the true product quality is not too high such that the firm will choose not to disclose quality information. This is because, with higher piracy cost, the firm has more incentives to disclose the quality and, as a result, rational customers' quality belief conditional on nondisclosure is lower, which leads to a lower profit the firm can obtain. We further extend our model in several aspects. Related managerial implications are discussed.
弋泽龙，深圳大学经济学院交通经济与物流管理系助理教授，博士毕业于香港科技大学商学院运营管理方向，主要从事消费者行为、供应链管理、信息经济学等相关研究工作。已经在Production and Operations Management、Decision Sciences、OMEGA、Information and Management等期刊发表论文，主持国家自然科学基金和广东省自然科学基金等科研项目，多次担任Manufacturing & Service Operations Management、Production and Operations Management、OMEGA、International Journal of Production Economics等期刊匿名审稿人。