Piolatto and Schuett (2012)
|Piolatto and Schuett (2012)|
|Title:||Music piracy: A case of “The Rich Get Richer and the Poor Get Poorer"|
|Author(s):||Amedeo Piolatto and Florian Schuett|
|Citation:||Piolatto, Amedeo, and Florian Schuett. Music piracy: A case of “the rich get richer and the poor get poorer”. Information Economics and Policy 24.1 (2012): 30-39.|
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|About the Data|
|Data Description:||This study is a literature review and refers to previous empirical studies and economic models on the effects of file sharing on the music industry. The authors create a new economic model to compare the different effect of piracy on successful musicians and also smaller, less successful (in terms of sales) musicians. The authors go on to examine the potential positive effects of piracy on overall income. No primary or secondary data is in the study.|
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|Cross Country Study?:||Yes|
|Government or policy study?:||No|
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There is evidence that music piracy has differential effects on artists depending on their popularity. We present a model of music piracy with endogenous copying costs: consumers'costs of illegal downloads increase with the scarcity of a recording and are therefore negatively related to the number of originals sold. Allowing for a second source of revenues apart from record sales, we show that piracy can hurt some artists while benefiting others. Under plausible assumptions, piracy is beneficial to the most popular artists. However, this does not carry over to less popular artists, who are often harmed by piracy. We conclude that piracy tends to reduce musical variety.
Main Results of the Study
The impact of piracy varies depending on the artist’s popularity. Our findings generalize a result found in a different setup by Gayer and Shy (2006). Like them, we show that piracy is beneficial to popular artists when side revenues are important. However, in our model this does not necessarily carry over to less popular artists: under plausible conditions on the parameters governing quality degradation and copying costs, these artists are harmed by piracy, and this can occur even when side revenues are large enough for piracy to benefit popular artists. Therefore, we have argued that piracy may be bad for social welfare since in the long run it may reduce musical variety. To conclude, let us briefly note that this negative result is mitigated when piracy, through its effect on recognition, has a positive impact on the probability of a relatively unpopular artist to become a star, as in Alcalá and González-Maestre (2010), which is likely to be the case in the presence of imperfections in the talent revelation process (Terviö, 2009, see).
Policy Implications as Stated By Author
- Piracy is not necessarily bad for the creators of music.
- The most successful artists are likely to feel the least effect of piracy.
- This means that less successful and newer artists feel more effect from piracy and this may be a barrier to joining the industry, leading to lower social welfare for consumers who will have less choice in the musicians available.