Music piracy: Bad for record sales but good for the iPod?

an article by Tin Cheuk Leung (Chinese University of Hong Kong) published in Information Economics and Policy Volume 31 (June 2015)

Abstract

Music piracy is a double-edged sword for the music industry. On the one hand, it hurts record sales. On the other hand, it increases sales of its complements.

To quantify the effect of music piracy, I construct a unique survey data set and use a Bayesian method to estimate the demand for music and iPods, and find three things.
First, music piracy decreases music sales by 24% to 42%.
Second, music piracy contributes 12% to iPod sales.
Finally, counterfactual experiments show that, if music were free, the increase in Apple’s profits from iPod can more than compensate the loss of musicians.
The last result implies that a Pareto improving iPod tax is possible.

JEL codes: K42, L82, O34,

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