More generally, counterfeiting reduces the return on investments, can lead to business failure and undermines incentives for technological innovation and intellectual creation.
Traditional policies for combating piracy have focused on prosecuting those who benefit from it, while raising awareness about how piracy affects artists and producers. But lowering taxes on legal products may do more to combat it than a larger police force, it is argued.
Increased policing increases the chance of confiscation and so reduces the profits of counterfeiting. But if that extra policing means higher taxes, it may make legal products more expensive. Lowering sales taxes will make the legal product more competitive compared with pirate copies.
Policies to combat piracy,
IESE Insight, June 2006
Review by Steve Lodge