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The Effect of Internet Piracy on CD Sales: Cross-Section Evidence

  • Law
  • Musicology


THE EFFECT OF INTERNET PIRACY ON CD SALES: CROSS-SECTION EVIDENCE MARTIN PEITZ PATRICK WAELBROECK CESIFO WORKING PAPER NO. 1122 CATEGORY 9: INDUSTRIAL ORGANISATION JANUARY 2004 An electronic version of the paper may be downloaded • from the SSRN website: • from the CESifo website: CESifo Working Paper No. 1122 THE EFFECT OF INTERNET PIRACY ON CD SALES: CROSS-SECTION EVIDENCE Abstract We analyze the role of music downloading on the current downturn in CD sales. We provide 2000-2001 cross-country evidence in support of the claim of losses due to internet piracy made by the music industry. For the U.S. we also assess the potential loss from internet piracy using detailed survey data. We conclude the empirical analysis by forecasting CD sales for 2002. The results suggest that internet piracy played a significant role in the decline in CD sales in 2001, but can hardly account for the subsequent drop in 2002. JEL Classification: D12, L82. Keywords: piracy, music, peer-to-peer, internet, survey data, cross-country regressions. Martin Peitz Department of Economics University of Mannheim 68131 Mannheim Germany [email protected] Patrick Waelbroeck ECARES Free University of Brussels CP 114, 50 av. Roosevelt 1050 Brussels Belgium [email protected] 1 Introduction Many voices in the music industry have claimed that internet piracy has reduced sales of legitimate CDs and that illegal MP3 downloads have become a substitute to legal CD purchases.1 Indeed, many analysts believe that the current downturn in CDs sales is due to the increasing and uncontrollable number of illegal copies available using peer-to-peer (P2P) technologies. End- user piracy, which is different from for-profit piracy, seems to be much more difficult to control. The industry and policy ma

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