Australians would pay more to legally download music and movies under federal government proposals to tackle online piracy, with the vast bulk of the extra revenue flowing to overseas companies rather than the local production sector, according to two of the country's top economists.

Allan Fels and Henry Ergas argue in a submission to the government that new measures to target illicit downloading would blunt the motivation for rights holders to make their content available cheaply and quickly. Pay television provider Foxtel acknowledges that recent moves to slash subscription costs and air hit shows such as Game of Thrones only hours after they are broadcast in the US have been driven in part by the growth of online piracy.

"By weakening the competitive pressure [copyright] infringement has placed on rights holders, and which has forced them to start reducing the extremely large gap between Australia and the US in pricing and availability in online video, the result will be that Australians will face higher prices," Mr Fels and Mr Ergas argue in their submission.

"The increase in non-infringing demand is likely to increase the price the copyright holder can charge, making legitimate consumers worse off, which in turn increases the incentive for piracy, offsetting the effects of stricter enforcement."