Much debate exists around the impact that illegal file sharing may have on the creative industries. Similarly, opinions differ regarding whether the producers of artistic works should be forced to accept any weakening of intellectual property rights resulting from illegal file sharing, or if governments should intervene to protect these rights. This paper seeks to inform these questions by outlining what we do and do not know from existing academic research.
We first discuss whether filesharing displaces sales of media goods and then discuss whether such displacement will lead to reduced incentives to produce new creative works. We continue by summarizing recent findings on what businesses can do to compete with piracy and the effectiveness of anti-piracy interventions on encouraging consumers to migrate from illegal to legal consumption channels. We conclude by demonstrating that without additional empirical evidence, it will be difficult to determine the socially optimal set of strategies and government copyright policies in the digital era.