How should firms react when consumers share passwords and other information goods?

What is it about?

Many information goods can be easily shared within social networks. Example include online services for information or entertainment, for which passwords can often be shared. Such sharing implies a loss of revenue and profit for the creators of these services. However, if firms anticipate this behavior and set their prices accordingly, they can mitigate (and in some cases completely eliminate) the negative impact.

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Why is it important?

This paper uses graph theory and a stylized analytical model to provide new insights into how social sharing impacts profits. Our results highlight the importance of understanding the structure of social networks, as well as how consumers collaborate within them, in order to make informed decisions as a provider of information goods.