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A model of music piracy with popularity-dependent copying costs

  • Amedeo Piolatto

    ()

    (IEB, University of Barcelona)

  • Florian Schuett

    ()

    (TILEC, CentER, Tilburg University)

Anecdotal evidence and recent empirical work suggest that music piracy has differential effects on artists depending on their popularity. Existing theoretical literature cannot explain such differential effects since it is exclusively concerned with single-firm models. We present a model with two types of artists who differ in their popularity. We assume that the costs of illegal downloads increase with the scarcity of a recording, and that scarcity is negatively related to the artist’s popularity. Moreover, we allow for a second source of revenues for artists apart from CD sales. These alternative revenues depend on an artist's recognition as measured by the number of consumers who obtain his recording either by purchasing the original or downloading a copy. Our findings for the more popular artist generalize a result found by Gayer and Shy (2006) who show that piracy is beneficial to the artist when alternative revenues are important. In our model, however, this does not carry over to the less popular artist, who is often harmed by piracy even when alternative revenues are important. We conclude that piracy tends to reduce musical variety.

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File URL: http://www.ieb.ub.edu/aplicacio/fitxers/2011/3/Doc2011-5.pdf
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Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2011/5.

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Length: 29 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:ieb:wpaper:2011/3/doc2011-5
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  17. Peitz, Martin & Waelbroeck, Patrick, 2006. "Piracy of digital products: A critical review of the theoretical literature," Information Economics and Policy, Elsevier, vol. 18(4), pages 449-476, November.
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  21. 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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