File-Sharing, Sampling, and Music Distribution

Martin Peitz and Patrick Waelbroeck

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

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.

Keywords: file-sharing; P2P; sampling; information transmission; piracy; music (search for similar items in EconPapers)
JEL-codes: L11 L82 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-cul, nep-ind, nep-mkt and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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