November 22, 2004

Missed This Summary! [8:43 pm]

Economic View: Does a Free Download Equal a Lost Sale? [pdf]

From the outset, however, economists have been skeptical that every free download represented a lost sale. And several years after the explosion, and subsequent implosion, of the original Napster, academics have begun to plug data about free downloading into complex equations and theoretical frameworks.

Stan Liebowitz, an economist of the University of Texas at Dallas who has synthesized much of the research, sees economists as generally coming to an agreement. “I think the consensus is going to be that file sharing and downloading is going to be harmful to sales of music,” he said. The question is, how much?

[...] Contrary to most predictions, sales of recorded music rose earlier this year. In the first half of 2004, shipments of CD’s rose 10.2 percent from the period the previous year, according to the recording industry group. “In that context, there’s a tourniquet around the problem,” said Mr. Bainwol. He said the industry’s crackdown on file sharing was bearing some fruit.

But Professor Oberholzer-Gee draws a different lesson. “Sales can go up even when the usage of peer-to-peer technology is rising,” he said. So it appears that the digitization of music will continue to be a boon both to music-loving consumers and to data-loving economists.

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