Peer-to-peer Networks and Complementary Goods: The Impact of Openness and Innovation on Profitable Piracy

File-sharing is often depicted as detrimental to traditional commercial activities and tends to dissuade official digital goods’ producers from innovating. Meanwhile, evidence shows that producers are likely to provide complementary hardware goods that are compatible with digital goods available both offline and online. This article investigates to what extent the introduction of peer-to-peer networks has a positive impact on the level of profits reached by producers. Our model shows that the file-sharing activity does not crowd the official digital goods producers and hardware goods producers out of the market. Moreover, we find that there exists suitable quality-based strategies so that both types of producers benefit from the file-sharing activity. The utility that peer-to-peer networks provide to file-sharers has to be considered cautiously for commercial firms to gain positive outcomes from the file-sharing activity.