[eep_social]

To model this, start by considering an abstract price vs demand curve - as price goes down demand goes up. Since we are looking at a digital good, supply is effectively unlimited (actually the marginal cost of offering a file for download which is zero until you’re too big for “free” options like google drive or imgur etc). So if we offer our digital good at the low low price of 0£, everyone who is interested in our product will “buy” it (ignoring discoverability and marketing, this happens with technical books all the time). However, if you raise the price to £5, some percentage of those who are interested will no longer be willing to buy. Perhaps money is tight and that’s their lunch, that means the opportunity cost of buying the digital good is lunch. Those people are never going to buy, at practically any price, so piracy is the only way to reach that segment of the market. The question is how big that segment is and whether there exists some price point that will get them to buy while continuing to provide incentive for you to offer the good.

There is also an interesting sidebar on the overhead of doing a transaction for any non-zero amount vs giving something away for free. The gist is that if you could do a (micro)transaction for $0.01 cheaply enough, you would be able to capture more of that market by lowering your overhead for offering the good.

This is also related to the idea that the optimal amount of fraud is not zero [1].

[1] https://news.ycombinator.com/item?id=32701913