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File-Sharing, Sampling, and Music Distribution


  • Peitz, Martin
  • Waelbroeck, Patrick


The use of file-sharing technologies, so-called Peer-to-Peer (P2P) networks, to copy music files has become common since the arrival of Napster. P2P networks may actually improve the matching between products and buyers - we call this the matching effect. For a label the downside of P2P networks is that consumers receive a copy which, although it is an imperfect substitute to the original, may reduce their willingness-to-pay for the original - we call this the competition effect. We show that the matching effect may dominate so that a label’s profits are higher with P2P networks than without. Furthermore, we show that the existence of P2P networks may alter the standard business model: sampling may replace costly marketing and promotion. This may allow labels to increase profits in spite of lower revenues.

Suggested Citation

  • Peitz, Martin & Waelbroeck, Patrick, 2004. "File-Sharing, Sampling, and Music Distribution," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 31, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:31

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    References listed on IDEAS

    1. Martin Peitz & Patrick Waelbroeck, 2005. "An Economist's Guide to Digital Music," CESifo Economic Studies, CESifo, vol. 51(2-3), pages 359-428.
    2. Martin Peitz & Patrick Waelbroeck, 2004. "The Effect of Internet Piracy on CD Sales: Cross-Section Evidence," CESifo Working Paper Series 1122, CESifo Group Munich.
    3. Martin Peitz & Patrick Waelbroeck, 2003. "Piracy of Digital Products: A Critical Review of the Economics Literature," CESifo Working Paper Series 1071, CESifo Group Munich.
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    Cited by:

    1. Martin Peitz & Patrick Waelbroeck, 2005. "An Economist's Guide to Digital Music," CESifo Economic Studies, CESifo, vol. 51(2-3), pages 359-428.
    2. Martin Peitz & Patrick Waelbroeck, 2004. "An Economist’s Guide to Digital Music," CESifo Working Paper Series 1333, CESifo Group Munich.

    More about this item


    file-sharing; P2P; sampling; information transmission; piracy; music;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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