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File-Sharing, Sampling, and Music Distribution
Martin Peitz University of Mannheim - Department of Economics Patrick Waelbroeck Ecole Nationale Superieure des Telecommunications December 2004 International University in Germany Working Paper No. 26/2004 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 JEL Classifications: L11, L82 Working Paper SeriesDate posted: January 24, 2005 ; Last revised: April 28, 2005Suggested CitationContact Information
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