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Indirect network effects with two salop circles: the example of the music industry

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  • Dewenter, Ralf
  • Haucap, Justus
  • Wenzel, Tobias

Abstract

This paper analyses the interdependency between the market for music recordings and concert tickets, assuming that there are positive indirect network effects both from the record market to ticket sales for live performances and vice versa. Using a model with two interrelated Salop circles we show that prices in both markets are corrected downwards when compared to the standard Salop model. Furthermore, we show that the effects of file sharing on firms' profitability and on variety are ambiguous. File sharing can increase profits through increased concert ticket demand and thereby also lead to additional market entry and additional variety. --

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Bibliographic Info

Paper provided by Friedrich-Alexander-Universität Erlangen-Nürnberg, Institut für Wirtschaftspolitik und Quantitative Wirtschaftsforschung (IWQW) in its series IWQW Discussion Paper Series with number 09/2009.

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Date of creation: 2009
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Handle: RePEc:zbw:iwqwdp:092009

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Web page: http://www.iwqw.rw.uni-erlangen.de/
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Keywords: Music Industry; Indirect Network Effects; Salop Model; File Sharing;

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  1. Reisinger, Markus & Schnitzer, Monika, 2008. "A Model of Vertical Oligopolistic Competition," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 228, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Peitz, Martin & Waelbroeck, Patrick, 2006. "Why the music industry may gain from free downloading -- The role of sampling," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 907-913, September.
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Cited by:
  1. Schnitzlein, Daniel D., 2012. "How Important Is Cultural Background for the Level of Intergenerational Mobility?," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 335-337.
  2. Tim Paul Thomes, 2010. "Vertically Related Markets of Collective Licensing of Differentiated Copyrights with Indirect Network Effects," Jena Economic Research Papers 2010-056, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. Tinkl, Fabian, 2010. "A note on Hadamard differentiability and differentiability in quadratic mean," IWQW Discussion Paper Series 08/2010, Friedrich-Alexander-Universität Erlangen-Nürnberg, Institut für Wirtschaftspolitik und Quantitative Wirtschaftsforschung (IWQW).

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