"One thing that we have learned is that piracy is not a pricing issue. It’s a service issue. The easiest way to stop piracy is not by putting antipiracy technology to work. It’s by giving those people a service that’s better than what they’re receiving from the pirates."
That's what Gabe Newell had to say about piracy at a conference in Seattle, transcribed by Geekwire, in which he gave a short talk on economics within the video game industry. It's difficult to argue against, especially given the sheer amount of money that is spent each year punishing real people who don't know how to use the pirate communities to get their way past DRM.
He went on to talk about how the freedom to change prices on Steam has evolved the way they think about pricing models:
"Then we decided that all we were really doing was time-shifting revenue. We were moving sales forward from the future. Then when we analyzed that we saw two things that were very surprising. Promotions on the digital channel increased sales at retail at the same time, and increased sales after the sale was finished, which falsified the temporal shifting and channel cannibalization arguments. Essentially, your audience, the people who bought the game, were more effective than traditional promotional tools. So we tried a third-party product to see if we had some artificial home-field advantage. We saw the same pricing phenomenon. Twenty-five percent, 50 percent and 75 percent very reliably generate different increases in gross revenue."