File-Sharing, Sampling, and Music Distribution

International University in Germany Working Paper No. 26/2004

26 Pages Posted: 24 Jan 2005  

Martin Peitz

University of Mannheim - Department of Economics

Patrick Waelbroeck

Telecom ParisTech

Date Written: December 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 Classification: L11, L82

Suggested Citation

Peitz, Martin and Waelbroeck, Patrick, File-Sharing, Sampling, and Music Distribution (December 2004). International University in Germany Working Paper No. 26/2004. Available at SSRN: https://ssrn.com/abstract=652743 or http://dx.doi.org/10.2139/ssrn.652743

Martin Peitz (Contact Author)

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany
+49 621 181-1835 (Phone)

HOME PAGE: http://peitz.vwl.uni-mannheim.de/

Patrick Waelbroeck

Telecom ParisTech ( email )

46 rue Barrault
F-75634 Paris, Cedex 13
France

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