Music file sharing and sales displacement in the iTunes era

A growing empirical literature examines the relationship between music file sharing and legal purchases of music, but existing studies examine the period before consumers had attractive legal digital a la carte options. The iTunes Music Store has grown quickly since its appearance in 2003, and digital music now accounts for a third of US recorded music sales. Using two new surveys of University of Pennsylvania undergraduates in 2009 and 2010, we ask how music file sharing and sales displacement operate in the iTunes era, when the alternative to file sharing is purchasing individual songs, rather than entire albums. We find large amounts of file sharing in this population. Respondents have more stolen than paid music, but the music obtained via file sharing is, for the most part, low-valuation music which the respondents would likely not have purchased. The rate of sales displacement implied by the relationship between stolen and purchased music across respondents in both samples is between −0.15 and −0.3. That is, an additional song stolen reduces paid consumption by between a third and a sixth of song. Perhaps surprisingly, this is about the same as the CD sales displacement rate found for the pre-iTunes era using a similar empirical approach on a similar study population.     

ESTIMATING THE WILLINGNESS TO PAY FOR DIGITAL MUSIC

The general consensus among the copyright piracy literature is that economic incentives and enforcement are both effective strategies that complement one another in reducing the occurrence of piracy. Yet, the key factor underlying these strategies is the ability of the media industries to influence an individual's willingness to pay (WTP) for legal purchases when illegal versions exist. This article estimates the effects of factors influencing WTP for digital music downloads. Our results show that while income and risk perceptions play a dominant role in determining WTP, ethics are also important in influencing WTP. Our results are consistent with the growing consumer acceptance of fee-based music services that can exist alongside peer-to-peer file sharing as well as serve as a viable substitute . ( JEL O34, K42, D12)     

Online sales, Internet use, file sharing, and the decline of retail music specialty stores

This paper uses phonebook records of music retailers in the United States for the years 1998 and 2002 to examine how Internet use, file sharing, and online sales of records have affected the entry and exit of brick and mortar music specialty retailers. By merging music store information with data on Internet activity and broadband connectedness at the metropolitan statistical area (MSA) level, with the number of broadband providers at the zip code level, and with a database of the location of universities, I analyze how online purchases, broadband, and Internet use affected the survival probability and the change in the number of music stores between 1998 and 2002. I further study whether the number of employees and chain membership affected the survival probability. I find that broadband connectedness increased the death rate of brick and mortar music stores and reduced their number. I also find that the presence of a university led to a reduction in the number of music specialty stores in the zip code.     

ILLEGAL MUSIC DOWNLOADING AND ITS IMPACT ON LEGITIMATE SALES: AUSTRALIAN EMPIRICAL EVIDENCE

This paper explores illegal music file‐sharing activity and its effect on Australian sales of singles in the physical and digital retail markets. Using fifteen weeks of Australian Recording Industry Association weekly chart rankings of physical and digital sales, combined with a proxy for download activity derived from the popular peer‐to‐peer (P2P) network Limewire, the evidence suggests no discernible impact of download activity on legitimate sales. Whilst significant negative correlation between chart rank and download activity is observed in the digital market, once download endogeneity is purged from the model and song heterogeneity is controlled for no significant relationship remains.     

The value of non-personally identifiable information to consumers of online services: evidence from a discrete choice experiment

We estimate the value of non-personally identifying information to consumers of online services through a discrete choice experiment based on hypothetical streaming video services. Non-personally identifying information for online services is typically information on the ways in and times at which customers use the service, and is distinct from personally identifying information such as email addresses or telephone numbers. For most of our survey respondents, we find no evidence that they were willing to pay to avoid sharing their non-personally identifying information with third parties. A smaller group of respondents never selected a service that shared information with third parties.     

Labor Market Interactions Between Legal and Illegal Immigrants

The paper looks at the situation of legal immigrants who employ illegal immigrants for various services. This enables the legal immigrants to allocate more time to other work, thereby increasing their earnings. Illegal immigrants employed by legal immigrants may specialize in certain professions and may themselves employ other illegal immigrants. A subeconomy evolves whose sole purpose is the provision of services by illegal immigrants for legal immigrants.     

ESTIMATING VALUE ADDED OF ILLEGAL PRODUCTION IN THE WESTERN BALKANS

Several economists continue to assert that the official national accounts of many countries do not cover a large “hidden” or “underground” economy. This article looks at one component of the underground economy, namely illegal activities. According to the UN System of National Accounts, production of goods and services that are illegal should be included in the Gross Domestic Product (GDP) if both the producers and consumers are willing partners to the transactions involved. We examine the estimates of illegal production recently made by several countries in the Western Balkans and conclude that, if illegal activities were fully included in their official GDP estimates, they would increase by about 1 percent. Trade in narcotics and prostitution are the two most important kinds of illegal activities in most countries and we look in detail at how estimates for these activities were made by the Western Balkan countries.     

Too poor to be green consumers? A field experiment on revealed preferences for firewood in rural Guatemala

The paper reports on a field experiment that investigates whether households in Guatemala are willing to surrender a small material gain in order to buy legal rather than illegal firewood. Given the ineffectiveness of command-and-control policies to curb the problem of illegal logging in Guatemala, the experiment assesses the potential viability of market-oriented solutions. Local consumers in developing countries are generally believed to be too poor to pay a premium for green/ethical products. Therefore, little information has been gathered on willingness-to-pay (WTP) for such products and its determinants in non-affluent consumer markets. While our experiment on firewood consumption in central Guatemala only implies a weak and indirect test of WTP for green products, the results indicate that it is premature, if not unwarranted, to assume that the poor are not ready to make pro-ethical choices in the marketplace. Moreover, we find that information on the legal procedures for firewood extraction significantly affects consumer choice between legal and illegal firewood.     

Do consumers pay voluntarily? The case of online music

The paper analyses the payment behaviour of customers of the online music label Magnatune. Customers may pay what they want for albums, as long as the payment is within a given price range ($5–$18). Magnatune's comprehensive pre-purchase access facilitates music discovery and allows an informed buying decision setting it apart from conventional online music stores.On average customers pay $8.20, far more than the minimum of $5 and even higher than the recommended price of $8. We analyse the relationship between artists/labels and customers in online music. We consider social preferences, in particular concerns for reciprocity. The resulting sequential reciprocity equilibrium corresponds to the observed pattern of behaviour.We conclude that Magnatune's open contracts design can encourage people to make voluntary payments and may be a viable business option.     

Beyond mobile number portability: measuring consumer preferences for service portability in Japan's mobile phone market

Japan's mobile phone market has been oligopolized by three incumbents who are seeking vertically integrated business models, which may prevent competitors from using platform layers to provide original services. We conduct two types of conjoint analysis to measure consumer stated preferences and draw two main conclusions from the analyses. First, the average consumer is willing to pay more than JPY 2000 (US $20) to increase mobile service portability. Second, the average consumer's willingness to pay corresponds to JPY 100–200 (US $1–2) per song for securing music download platforms. A dilemma exists in consumer preferences for service portability in Japan's mobile phone market, namely the choice between free mobile service portability and convenient music download platforms.     

Antitrust reform: Predatory practices and the competitive process

Conclusion This article has suggested that the general theory of predatory practices is seriously flawed. Predatory behavior cannot be logically distinguished from benign competitive behavior either by intent or by any price-cost rules. Price reductions, selective or otherwise, and various nonprice rivalrous strategies (such as advertising and innovation) are all part and parcel of a competitive market process. This process serves an important social purpose: it serves to discover the products and services that consumers prefer, and the business organizations that can provide those products and services. Antitrust regulation of this process is based on inappropriate equilibrium theorizing, and it serves only to inhibit the discovery of consumer preferences and the flow of resources from less efficient suppliers to more efficient suppliers. Thus, the legal restriction or prohibition of any competitive practice is inappropriate and appears contrary to the newer antitrust reform attitudes.     

An economic model of religious organization under oppressive regulation

This paper aims to explain the behavior of certain religious organizations in countries with severe regulation that limits the religious market, such as those under communist rule. Religious organizations in those countries sometimes choose to operate both legally and illegally. The model proposed here shows that such behavior may increase the consumer welfare of religionists compared to solely legal or illegal provision of religious services. It assumes that religious organizations maximize the consumer surplus of their adherents. The choice of a religious organization between legal and illegal provision of religious services depends on the costs of religious participation imposed by the government and the set-up costs of dual operation. As an illustration, the paper accounts for the different response of the Catholic Church to restrictions imposed by the communists in Poland and Czechoslovakia.     

A theory of permissible illegal immigration

In many countries laws are not enforced against visibly present illegal immigrants. The visibly present illegal immigrants also tend to be concentrated in particular sectors. We explain such permissible illegal immigration in an endogenous-policy model where selective sector-specific illegality transforms illegal immigrants from non-sectorally specialized to sector-specific factors of production. Under initial conditions where no immigrants are present, the median voter opposes immigration. When, however, a population of illegal immigrants has accumulated, ongoing illegal immigration becomes an endogenous equilibrium policy, at the same time that a majority of voters opposes legal immigration and opposes amnesty that would legalize the immigrants' presence. We also establish a basis for domestic voters preferring that illegal immigrants be employed in service rather than traded-goods sectors.     

Intentions to Return of Clandestine Migrants: Comment

We take issue with the reasoning of Coniglio et al. ( 2009 ) that whereas better‐skilled illegal migrants will prefer to return‐migrate, lower‐skilled illegal migrants will not. We argue that under asymmetric information, all the illegal migrants are initially paid a wage based on the average productivity of the group of illegal migrants. The better‐skilled illegal migrants thus face two “taxes:” being paid less than if they were legal, and being averaged down. Therefore, better‐skilled illegal migrants can be expected to expend more effort to become legal than lower‐skilled illegal migrants. And once legalized, there is no reason for the better‐skilled illegal migrants to want to return to their country of origin more than the lower‐skilled illegal migrants. Thus, it is the lower‐skilled illegal migrants that are likely to dominate the return migration flow. We argue that in other respects too, the model of Coniglio et al. is not based on reasonable assumptions, and that even under the postulated assumptions, the model suffers from several inconsistencies. In particular, when the rate of return to savings is an increasing function of skill level, we would expect there to be few better‐skilled individuals among illegal migrants in the first place. Also, an obvious distinction between savers and borrowers is ignored.     

The impact of socio-economic background on satisfaction: evidence for policy-makers

Consumer satisfaction with utility services has received increased attention from firms, consumer associations, regulators and governments since the 1990s. Evidence is mounting that consumers in specific socio-economic groups express lower satisfaction levels than their peers, at least, in some utility markets. Seeing this as part of their remit to protect consumer welfare, governments and international organizations are exploring possible demand-side policy responses with the intention of ameliorating lower satisfaction levels of these groups of consumers. However, more information on the precise relationships between satisfaction and consumers’ socio-economic background is required if policy is to be proportional and effective. This paper provides new empirical knowledge on this topic by contrasting consumers’ stated and revealed preferences for five utility services (electricity, gas, fixed and cellular telephony and Internet) across twelve European countries. We find strong evidence that consumers’ socio-economic characteristics matter: consumers with lower levels of education, the elderly and those not employed exhibit particular expenditure patterns on, and lower satisfaction levels with, some utility services. However, this relationship is uneven and depends on the socio-economic category and service in question. We conclude by highlighting five findings which may be of use to policy-makers when considering whether demand-side regulatory policies are required     

Digital identity: How users value the attributes of online identifiers

This paper examines online identifiers from an economic perspective. It uses conjoint analysis survey techniques to develop empirical data on how users value the attributes of online identifiers. It is concerned in particular with three issues: (1) the degree to which identified subjects value increasing the scope of an identifier, i.e., the ability to use a single identifier to access services offered by several organizations; (2) the degree to which users’ choice may be constrained by switching costs; and (3) the value individuals place on privacy and data security relative to other attributes such as cost or scope. The survey population was located in South Korea. The results indicate that e-mail addresses dominate the world of online identifiers for ordinary consumers; that consumers highly value increased scope (e.g., single sign-on capabilities) and the security of their private data; and that switching costs are high.     

The case against eliminating large denomination bills

When large denomination bills are preferred in illegal activities, what is the optimal policy response? We construct a dual currency model where illegal activity can be reduced by modifying the payment environment. In our model, legal (goods) traders are indifferent between small and large bills, but illegal (goods) traders face a lower transaction cost of using large bills in comparison to small bills because it is easier to conceal. We show that eliminating large bills can reduce illegal trade and its associated social cost. However, this pooling equilibrium is sub-optimal because the government can collect more seigniorage by allowing illegal traders to use large bills with a lower rate of return. When the transaction cost of using small bills for illegal traders is sufficiently large, a separating equilibrium, where legal traders use small bills and illegal traders use large bills, can maximize welfare by making an implicit transfer from the illegal traders to the legal traders.     

What is it consumers really want, and how can their preferences be influenced? The case of fat in milk

In this paper we investigate preferences for fat in milk through a structural characteristics model. The data includes information about daily purchases and social and demographic characteristics of more than 1,100 households. We find that consumers who prefer milk with a high fat content do not react to information about health effects, but can be influenced by prices, while consumers who prefer milk with a low share of fat are influenced by information, but are less price sensitive. Therefore, when attempting to decrease consumption of fat from milk, prices are more efficient than information.     

U.S. IMMIGRATION REFORM: POLICY ISSUES AND ECONOMIC ANALYSIS

In recent years, legal U. S. immigration has approached historically high levels, and illegal immigration has been thought to be high and perhaps rising. Consequently, the Select Commission on Immigration and Refugee Policy proposed sweeping changes in the nation's immigration laws. During 1984, both the Senate and House passed the Immigration Reform and Control Act (Simpson-Mazzoli Bill). This bill subsequently died in the conference committee that was established to reconcile differences between the bill's two versions. The proposed act has three major provisions: (1) control of illegal immigration, (2) legalization of alienstatus, and (3) reform of legal immigration. Both the House and Senate versions would maintain the present orientation of U.S. immigration policy toward family reunification, but the Senate proposed significant changes in legal immigration restrictions that would shift policy slightly more toward labor considerations. These proposed changes were eliminated in the compromise made in the conference committee. Employer sanctions and legalization of illegal aliens were left as the two most prominent alterations to existing policy. During 1985, the 99th Congress is likely to reconsider the Simpson-Mazzoli Bill, perhaps in a streamlined version which emphasizes employer sanctions, legalization, and a substantial increase in border enforcement.