Ahn and Yooney (2008)
|Ahn and Yoon (2008)|
|Title:||On the Impact of Digital Music Distribution|
|Author(s):||Ahn, I., Yoon, K.|
|Citation:||Ahn, Illtae, and Kiho Yoon. On the impact of digital music distribution. CESifo Economic Studies 55.2 (2009): 306-325.|
|Key Related Studies:|
|About the Data|
|Data Description:||This study sets up a representative model that enables a comparative static analysis of two empirical observations about the music industry: the sales decline and the price constancy. The authors then fit the model to these observations. The study also utilises a literature review of 13 previous empirical studies.|
|Data Type:||Secondary data|
|Secondary Data Sources:|
|Data Collection Methods:|
|Data Analysis Methods:|
|Cross Country Study?:||Yes|
|Government or policy study?:||No|
|Time Period(s) of Collection:||
We present a framework to evaluate the impact of digital music distribution. We set up a representative model that enables the comparative static analysis. We then interpret two empirical observations about the music industry, the sales decline and the price constancy, and fit the model to these observations. We find that, while the impact of digitalization on the producers’ profits is probably negative, it may not be as severe as the observed impact on the quantity. On the other hand, the impact of digitalization on the consumer surplus is unambiguously positive. The impact on the social welfare is rather ambiguous in general, but the social welfare may increase for plausible parameter values.
Main Results of the Study
- Result 1: The observed price constancy implies that the sampling effect is significant. The quantity decrease may be due to the substitution effect as well as the producer’s price strategy.
- Result 2: Empirical facts support the conclusion that (i) the profit decreases; (ii) the consumer surplus increases; and (iii) the social welfare either increases or decreases due to the digitalization. In our model, the social welfare may increase for plausible parameter values.
- Result 3: Legal or technological measures to reverse the substitution effect caused by digital music distribution may decrease the social welfare further.
Policy Implications as Stated By Author
- First, though the producers’ profits have probably shrunk,the decrease may not be as severe as the observed sales decline.
- Second, the consumer surplus has unambiguously increased.
- Third, the social welfare may have increased for plausible parameter values.
Coverage of Study
|Level of aggregation:||Music sales data|
|Period of material under study:||1973 to 2003|