File-Sharing: Creative Destruction or just Plain Destruction?

The ‘sharing’ of sound recordings over the Internet is the newest controversy in a long running battle between copyright owners and copying technologies. In order to provide some context, perspective and background, this paper examines the short history of file-sharing, the longer history of record sales, various explanations for the change in record sales and some analysis of the economics of copying. Although file-sharing has been imperfectly and inconsistently measured, it nevertheless appears to reveal a fairly close linkage between changes in file-sharing and changes in record sales. Explanations, other than file-sharing, for the recent decline in record sales seem to have little or no support. Because economic theories of the impacts of copying hold out little hope for a benign impact of file-sharing, these results should not be surprising. These findings reinforce the econometric results from most of an expanding literature. *I would like to thank Steve Margolis, seminar participants at the University of Montreal, and for financial support, the Center for the Analysis of Property Rights and Innovation.