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Abstract

New forms of implicit consumer collaborations in online communities and social networks influence demand preferences as consumers themselves increasingly participate in creating cultural products that both complements and competes with firm offerings. Although research findings on these issues vary, strong evidence from both theoretical and empirical work suggests that the increased technology affordance on the consumer side challenges the profitability of conventional producer strategies that are based on pushing product designs that serve large segments of consumers while ignoring the service of more nuanced consumer preferences. In this study, we present a market design in which producers create and sell original digital culture product and, examine the effect of consumer co-creation in the presence of consumer sharing (piracy) on market performance in terms of consumer and producer surplus and consumer choice. Using the methods of experimental economics, we find strong interaction effects between consumer sharing and co-creation, and, more specifically, we find that consumer sharing interacts with consumer-based co-creation and increases product variety and consumer surplus while reducing producer benefits from co-creation.

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