Thursday, May 6, 2010

Estimating upper bounds

Slashdot reports that game piracy is not as big a problem as the industry says. What I'm wondering is why anyone would trust an estimate of "lost sales" from the industry?

It's a good analysis but they went too far when they said 10% is an upper bound for how much business is lost. If people who like games the most are the most likely to jailbreak a phone and pirate games, then they are losing a larger proportion of sales than the proportion of people stealing games.

Take this simple numerical example: there are 2 types of gamers. Regular games buy 1 game a year. Hard core gamers by 10 games a year. Say 95% of gamers are regular and 5% are hardcore. Assume 10% of gamers pirate games, 2% being hard core gamers and 8% being regular gamers.

The percentage of lost sales is 1*.08+10*.02 / (1*.95+10*.05) = 19.3%, almost double the 10% upper bound. (These numbers are only for illustrative purposes.)

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