The Effect of File Sharing on Record Sales: An Empirical Analysis

Abstract

For industries ranging from software to pharmaceuticals and entertainment, there is an intense debate about the appropriate level of protection for intellectual property. The Internet provides a natural crucible to assess the implications of reduced protection because it drastically lowers the cost of copying information. In this paper, we analyze whether file sharing has reduced the legal sales of music. While this question is receiving considerable attention in academia, industry, and Congress, we are the first to study the phenomenon employing data on actual downloads of music files.We match an extensive sample of downloads to U.S. sales data for a large number of albums. To establish causality, we instrument for downloads using data on international school holidays. Downloads have an effect on sales that is statistically indistinguishable from zero. Our estimates are inconsistent We would like to thank Bharat Anand, Gary Becker, Bob Frank, Shane Greenstein, Austan Goolsbee, Alan Krueger, Steven Levitt, Tom Mroz, Alan Sorensen, Joel Waldfogel, Steven Wildman, Pai-Ling Yin, participants at numerous seminars, and two anonymous referees for helpful comments. This project would not have been possible without the assistance of several individuals and organizations. MixMasterFlame and the FlameNap network shared P2P data with us, and BigChampagne LLC, the CMJ Network, Nathaniel Leibowitz, and Nevil Brownlee generously provided auxiliary data. We thank Keith Ross and David Weekly for assistance in understanding the KaZaA, OpenNap, and WinMX search protocols and database indices. Sarah Woolverton and Christina Hsiung Chen provided superb research assistance. The financial support of the George F. Baker Foundation (Oberholzer-Gee) and the Kenan Faculty Fund (Strumpf) is gratefully acknowledged. We appreciated the aural support from Massive Attack, Sigur Ros, and the Mountain Goats.