The Effect of File Sharing on Record Sales An Empirical Analysis

A longstanding economic question is the appropriate level of protection for intellectual property. The Internet has drastically lowered the cost of copying information goods and provides a natural crucible to assess the implications of reduced protection. We consider the specific case of file sharing and its effect on the legal sales of music. A dataset containing 0.01% of the world’s downloads is matched to U.S. sales data for a large number of albums. To establish causality, downloads are instrumented using technical features related to file sharing, such as network congestion or song length, as well as international school holidays. Downloads have an effect on sales which is statistically indistinguishable from zero, despite rather precise estimates. Moreover, these estimates are of moderate economic significance and are inconsistent with claims that file sharing is the primary reason for the recent decline in music sales. We thank Shane Greenstein and participants at the 2004 AEA meeting for valuable comments and suggestions. We also acknowledge Sarah Woolverton for her tireless efforts to improve the quality of our song matching algorithm and Christina Hsiung Chen for research assistance. The CMJ Network, Nathaniel Leibowitz, and Nevil Brownlee generously provided us with auxiliary data. Oberholzer-Gee gratefully acknowledges the financial support of the George F. Baker Foundation. Aural support from Massive Attack, Sigur Ros and The Mountain Goats is gratefully acknowledged.