|Title:||The effect of napster on recorded music sales: Evidence from the consumer expenditure survey|
|Citation:||Hong, S-H. (2004). The effect of napster on recorded music sales: Evidence from the consumer expenditure survey. Stanford Institute for Economic Policy Research, Discussion Paper No. 03-18.|
|Key Related Studies:|
|Linked by:||Michel (2006), Oberholzer-Gee and Strumpf (2010)|
|About the Data|
|Data Description:||The author uses the Interview survey from 1996 to 2001 at level of a consumer unit (CU) which is essentially a household. His data set contains 56,951 different CUs.|
|Data Type:||Primary data|
|Secondary Data Sources:|
|Data Collection Methods:|
|Data Analysis Methods:|
|Cross Country Study?:||No|
|Government or policy study?:|
|Time Period(s) of Collection:||
This paper quantifies the magnitude of changes in household-level expenditures on recorded music in the United States, particularly attributed to the emergence of Napster.Exploiting the rich information contained in the Consumer Expenditure Survey, I use three approaches to measure the effect of Napster. The difference-in-difference kernel matching (DDM) method directly quantifies the effect. I find that the quarterly music expenditure of the average U.S. household has declined by two dollars and forty-six cents as a result of using the Internet and plausibly Napster. This accounts for 33% of the decrease in total recording sales in 2000. The second approach estimates a demand system for entertainment goods. The estimated cross-price elasticities imply that changes in prices of other entertainment goods also explain the slump in recorded music sales. In 2000, roughly 37% of the decline in recording sales is due to such changes in prices. The final method constructs synthetic cohorts. The results indicate that transition from LPs to CDs might describe the increase in music sales during the 1990’s as well as the recent slowdown. These two other methods indirectly measure the effect of Napster in that they explicate that more than 80% of music sales decrease in 2000 might have resulted from factors aside from Napster. This implies that the estimated magnitude using DDM may quantify changes in the household-level music expenditure due to not only Napster but also factors other than file-sharing of copyrighted music.
Main Results of the Study
- The results of the study imply that the transition effect is consistent with the recent slowdown in the recording industry.
- The quarterly music expenditure of the average U.S. household has declined by two dollars and forty-six cents as a result of using the Internet and, plausibly, starting to use Napster. This accounts for 33% of the decrease in total recording sales in 2000.
- Changes in prices of other entertainment goods also explain the slump in recorded music sales. In 2000, roughly 37% of the decline in recording sales was due to such changes in prices.
- The results indicate that transition from LPs to CDs might describe the increase in music sales during the 1990’s as well as the recent slowdown. This transition effect might explain 44.7% decrease of recorded music sales in 2000.
Policy Implications as Stated By Author
One fundamental premise of copyright protection is that it secures revenues of copyright holders and the related industry by prohibiting unauthorized copies of music. Because this premise underlies the essential economic incentive of copyright protection, it needs to be verified before any further discussion regarding copyrights.
Coverage of Study
|Level of aggregation:||Households|
|Period of material under study:||1996-2001|