File-Sharing, Sampling, and Music Distribution

Peitz, Martin and Waelbroeck, Patrick (December 2004): File-Sharing, Sampling, and Music Distribution. SFB/TR 15 Discussion Paper No. 31

Abstract

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.

• Item Type: Paper
• Keywords: file-sharing, P2P, sampling, information transmission, piracy, music
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > C6 - Kommunikations- und Transporttechnologien, Industrie- und Regionalstruktur
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: L11, L82
• Language: English