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Measuring the Effect of File Sharing on Music Purchases

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  • Zentner, Alejandro
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    Abstract

    File sharing may substantially undermine the intellectual property rights of digital goods. This paper concentrates on the music industry. I estimate the effect of music downloads on the probability of purchasing music using a European individual-level cross section of 15,000 people from 2001. A simple comparison of means shows that people who regularly download music online are more likely to buy music. The positive relationship persists when controlling for observed characteristics. However, simultaneity between tastes for music and peer-to-peer usage makes it difficult to isolate the causal effect of music downloads on music purchases. To break that simultaneity, this paper uses measures of Internet sophistication and the speed of the Internet connection as instruments. The results suggest that peer-to-peer usage reduces the probability of buying music by 30 percent. On the basis of my estimates, back-of-the-envelope calculations indicate that--without downloads--sales in 2002 would have been around 7.8 percent higher.

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    File URL: http://dx.doi.org/10.1086/501082
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    Article provided by University of Chicago Press in its journal Journal of Law and Economics.

    Volume (Year): 49 (2006)
    Issue (Month): 1 (April)
    Pages: 63-90

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    Handle: RePEc:ucp:jlawec:y:2006:v:49:i:1:p:63-90
    Contact details of provider: Web page: http://www.journals.uchicago.edu/JLE/

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    1. Angrist, Joshua D, 2001. "Estimations of Limited Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 2-16, January.
    2. Newey, Whitney K., 1987. "Efficient estimation of limited dependent variable models with endogenous explanatory variables," Journal of Econometrics, Elsevier, vol. 36(3), pages 231-250, November.
    3. Hui Kai-Lung & Png Ivan, 2003. "Piracy and the Legitimate Demand for Recorded Music," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-24, September.
    4. Jeffrey R. Brown & Austan Goolsbee, 2002. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 481-507, June.
    5. William Landes & Douglas Lichtman, 2003. "Indirect Liability for Copyright Infringement: Napster and Beyond," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 113-124, Spring.
    6. Goolsbee, Austan & Klenow, Peter J, 2002. "Evidence on Learning and Network Externalities in the Diffusion of Home Computers," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 317-343, October.
    7. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    8. Angrist, Joshua D, 2001. "Estimations of Limited Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 27-28, January.
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