Abstract
This study measures the extent to which P2P file-sharing activities act as substitutes or complements to music purchases in markets for CDs. The paper breaks with the mainstream economics approach which dominates the music file-sharing discussion. Whereas such models assume relationships at the micro level (e.g. between file-sharing and purchases) based on observations made at the macro level, our evolutionary economics approach measures the direct effects using micro data representative of the Canadian population. The behavioral incentives underpinning free music downloading, novel to this paper, are the multiple effects of: ‘unwillingness to pay’ (market substitution), ‘hear before buying’ (market creation), ‘not wanting to buy a whole album’ (market segmentation), and ‘not available in the CD format or on electronic pay-sites’ (market creation). Although the two first mentioned incentives significantly influence CD album purchases—i.e. there is a negative and significant market substitution effect and a positive and significant market creation effect—on the whole, these two effects ‘cancel’ one another out, leading to no association between the number of P2P files downloaded and CD album sales.
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Notes
Research material feeding into this paper:
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Birgitte Andersen initially provided Industry Canada with the questionnaire developed for the survey. The final version was shaped in accordance with the recommendations by Industry Canada and Decima Research, and in accordance with the results of the pilot survey conducted by Decima Research.
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Birgitte Andersen developed the Methodology Report underpinning the design for the subsequent data analysis.
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Decima Research conducted 2,100 telephone interviews with Canadian households, and provided the raw data.
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Industry Canada prepared the survey database.
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See, for example, Liebowitz (2008), which is based on city-level data, and where a relationship is assumed between record sales measured for an entire city and Internet penetration in a city (used as a proxy for file-sharing).
The information on the number of P2P downloads of these 246 observations was imputed by Decima Research. We computed estimations both with and without these 246 observations and found no significant difference. The results presented here exclude these 246 respondents.
Adding one, compared to any other value, is common practice within the area of economics and management studies (Tabachnick and Fidell 2007) and is done because the log of one equals zero and thus the transformation does not lead to a shift in the distribution, i.e. both the untransformed and the transformed data take zero as the smallest value. We also transformed the dependent variable by taking the square root and found that the log transformation produced results closer to a normal distribution.
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Acknowledgements
We are grateful to Industry Canada for facilitating this research (contract no. 5016574), to Prof Petr Hanel for profound comments on an earlier version of the paper, and to Decima Research for suggestions on the questionnaire design. We would also like to thank the anonymous referees for their useful comments. The views in this paper reflect those of the authors.
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Appendix: Descriptive and correlations between the dependent variable, independent variables and instruments
Appendix: Descriptive and correlations between the dependent variable, independent variables and instruments
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Andersen, B., Frenz, M. Don’t blame the P2P file-sharers: the impact of free music downloads on the purchase of music CDs in Canada. J Evol Econ 20, 715–740 (2010). https://doi.org/10.1007/s00191-010-0173-5
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DOI: https://doi.org/10.1007/s00191-010-0173-5