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Indirect network effects with two Salop circles: the example of the music industry

Ralf Dewenter, Justus Haucap () and Tobias Wenzel

No 63, Ilmenau Economics Discussion Papers from Ilmenau University of Technology, Institute of Economics

Abstract: This paper analyses the interdependency between the market for music recordings and concert tickets, assuming that there are positive indirect network effects both from the record market to ticket sales for live performances and vice versa. Using a model with two interrelated Salop circles we show that prices in both markets are corrected down- wards when compared to the standard Salop model. Furthermore, we show that the effects of file sharing on firms' profitability and on variety are ambiguous. File sharing can increase profits through increased concert ticket demand and thereby also lead to additional market entry and additional variety.

Keywords: Music Industry; Indirect Network Effects; Salop Model; File Sharing (search for similar items in EconPapers)
JEL-codes: L13 L82 Z10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-mic and nep-net
Date: 2009
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