Discussion Papers 2020

CIRJE-F-1139	"Piracy as promotion? The Importance of Diffusion in the Music Industry"
Author Name	Marszalec, Daniel and María Martín-Rodríguez
Date	January 2020
Full Paper	PDF File
Remarks	Revised in February 2020.

Abstract
We analyze the effect of piracy using a model of the music industry that consists of artists, consumers and platforms. Artists are heterogeneous in their degree of ex-ante popularity (either famous or emergent) and have two sources of income: sales of songs and concerts. For the emergent artist only increasing the number of songs sold (diffusion) also increases the revenue from concerts. Consumers can access songs hosted on two platforms. The for-profit platform sells high-quality copies at a positive price, whereas the open platform offers low-quality copies for free. We compare equilibria and welfare under copyright and under piracy. We find that the emergent artist prefers piracy more often than the famous artist, that the price charged by the for-profit platform does not necessarily decrease with piracy, and that piracy may damage the social welfare when the quality differential is large enough.

Abstract

We analyze the effect of piracy using a model of the music industry that consists of artists, consumers and platforms. Artists are heterogeneous in their degree of ex-ante popularity (either famous or emergent) and have two sources of income: sales of songs and concerts. For the emergent artist only increasing the number of songs sold (diffusion) also increases the revenue from concerts. Consumers can access songs hosted on two platforms. The for-profit platform sells high-quality copies at a positive price, whereas the open platform offers low-quality copies for free. We compare equilibria and welfare under copyright and under piracy. We find that the emergent artist prefers piracy more often than the famous artist, that the price charged by the for-profit platform does not necessarily decrease with piracy, and that piracy may damage the social welfare when the quality differential is large enough.