debate. Does piracy slow new products from being brought to market? If
so, and if consumers care about new
products—and there is compelling evidence they do—then in the longer run,
stealing can have a devastating effect
on both producers and consumers.
What does the evidence show?
Quantifying the effect of piracy
on sales is an inherently difficult
question. First, piracy is an illegal
behavior and therefore not readily
documented in, say, government statistics. As a result, it is difficult to get
data on volumes of unpaid consumption, particularly in ways that can
be linked with volumes of paid consumption (more on this later in the
column). A second and equally important difficulty is the usual scourge
of empirical work in the field, that is,
its non-experimental nature.
Broadly, what we know about music piracy is this: the rate of sales displacement is probably far less than
1: 1. Supporting this view is corroborating evidence that consumers steal
music that, on average, they do not
value very highly and would not otherwise purchase.
Still, the volume of unpaid consumption is quite high. So even with
a small rate of sales displacement per
instance of stealing, it is likely that
stealing explains much if not all of the
substantial reduction in music sales
since Napster. That is, stealing appears
to be responsible for much of the harm
to the recorded music industry (for an
overview, see Leibowitz3). Yet, that does
not answer the whole question. Another crucial question is whether the reduction in revenue reduces the flow of
new products to market.
Perhaps because this is a difficult
question to study, there has been almost no research on the topic. Recorded music is the only industry that
has experienced a massive reduction
in revenue. This can play the role of
an “experiment” to see whether the
flow of new products declines following a weakening in effective copyright
protection. However, it is only one experiment, and researchers do not have
the option of rerunning it with slightly
different circumstances, so getting
definitive answers is challenging.
While some researchers have documented an increase in the number
the stable flow
of new products
appears to be a
puzzle when set
against the sharply
of new recorded music products and
independent labels since 2000, this
evidence is ambiguous. Most of these
products are consumed little if at all
(for example, see Handke1, 2 and Oberholzer-Gee and Strumpf4).
It is tempting instead to ask how
many products released each year sell
more than, say, 5,000 copies. But not
so fast! That approach is undermined
entirely by the fact that stealing is on
the rise, so that the meaning of selling
a particular number of copies changes
In recent work I took a new approach (see Waldfogel5, 6). I document
the evolution of quality using critics’
lists of the best albums of various
times periods (for example, best of the
decade). Any album on one of these
lists surpasses some threshold of importance. The number of albums on
a list released in each year provides an
index of the quantity of products passing a threshold over time. I “splice”
nearly 100 such lists, and I can see
how the ensuing overall index evolves
over time, including—importantly—
during the “experimental” period
since Napster. The index tracks familiar trends in the history of popular
music: it rises from 1960 to 1970, falls,
then rises again in the early 1990s. It
is falling from the mid-1990s until the
1999 introduction of Napster.
What happens next? Rather than
falling—as one might expect for an era
of sharply reduced revenue to record-
ed music—the downturn of the late
1990s ends, and the index is flat from
2000 to 2009. While it is of course pos-
sible that absent Napster, the index
would have risen sharply in a flower-
ing of creative output, it nevertheless
seems clear that there has been no
precipitous drop in the availability of
good new products.
the Debate Continues?
Beware of simple answers in debates
about piracy. Our knowledge remains
incomplete. Representatives of copyright-protected industries are understandably concerned about threats
to their revenue from piracy. In some
cases—for example, recorded music—they can point to compelling evidence that their revenues are down.
That is, most evidence available so
far shows harm to sellers from consumer theft.
On the longer-run question of continued supply, however, we know far
less. Has the supply of quality music
declined due to piracy? Probably not.
Finding desirable intellectual property institutions—that properly balance the interests of various parties—
requires attention to the interests
of both producers and consumers.
Reports of shrinking revenue in the
copyright-protected industries are a
cause for concern and further exploration, but they are not alone sufficient
to guide policy-making.
1. handke, c. digital copying and the supply of sound
recordings. Unpublished Manuscript, 2010; http://
2. handke, c. Plain destruction or creative destruction?
copyright erosion and the evolution of the record
industry. Review of Economic Research on Copyright
Issues 3, 2 (feb. 2006), 29–51.
3. liebowitz, S.J. file sharing: creative destruction or
just plain destruction? Journal of Law and Economics
49, 1 (apr. 2006), 1–28.
4. oberholzer-gee, f. and Strumpf, k. file-sharing and
copyright. NBER’s Innovation Policy and the Economy
series 10. J. lerner and S. Stern, eds. Mit Press, 2009.
5. Waldfogel, J. bye, bye, miss american pie: the supply
of new recorded music since napster. national bureau
of economic research Working Paper 16882, March
6. Waldfogel, J. Music piracy and its effects on demand,
supply, and welfare. Innovation Policy and the
Economy 12 (June 2011), J. lerner and S. Stern, eds.
Joel Waldfogel ( firstname.lastname@example.org) is a professor and
the frederick r. kappel chair in applied economics in
the carlson School of Management at the University of