The Heterogenous Effects of Copying: The Case of Recorded Music David Blackburn∗ First Draft: April, 2004 This Draft: June 1, 2006 Abstract The availability of copies to consumers has competing effects on sales that are heterogenous across producers. First, there is a direct substitution effect on sales as copies replace originals and second, there is a penetration effect which increases sales, as the spread of the good makes it more well-known through the population. The first effect is strongest for ex ante well-known producers, while the second dominates for ex ante unknown producers. This phenomenon is examined within the recorded music industry and evidence shows that file sharing has had a strong distributional impact on sales. However, the dominance of sales by well-known artists leads to a large negative of copying at the industry level. ∗National Economic Research Associates,
[email protected]. A previous version of this paper was circulated under the title: "On-line Piracy and Recorded Music Sales." This version of the paper is a revision of the first chapter of my 2005 Harvard University PhD dissertation. I would like to thank Mariana Colacelli, Jan De Loecker, David Evans, Kate Ho, Joy Ishii, Larry Katz, Bryce Ward, and participants at the Harvard IO Workshop and the 2004 International Industrial Organization Conference for helpful suggestions. Special thanks to Gary Chamberlain, Julie Mortimer, and Ariel Pakes for their advice and encouragement. Additionally, I am indebted to Eric Garland and Adam Toll at BigChampagne and Rob Sisco at Neilsen SoundScan for providing access to themselves and their data, without which this project would have been impossible.