Rob/Waldfogel’s article in the Journal of Law and Economics is based on a 2004 working paper entitled “Piracy on the High C’s. Music Downloading, Sales Displacement, and Social Welfare in a Sample of College Students”. The authors used a survey-based dataset of music downloading and purchases of 8,200 albums by 412 college students. The repondents were asked whether they download more and buy fewer albums. The authors document “(…) that downloading reduces music purchases, by roughly one fifth of a sale for each recent download and possibly much more” (Rob and Waldfogel 2004: 29). The conservative estimates indicate that “(…) downloading reduced purchases by individuals in the sample by about 10 percent during 2003”. (Rob and Waldfogel 2004: 29)
The basic data were derived from two surveys. In the first survey from December 2003 to February 2004, 412 college students from the University of Pennsylvania, Hunter College, Chicago’s MA master program in public policy, and from City College New York were asked, beside demographic information, about the number of CDs owned, speed of Internet access, and interest in music. In the second survey, 92 students from University of Pennsylvania had to value ex ante and ex post 1,209 purchased and downloaded albums.
The respondents were asked not only what they bought and downloaded but also how highly they value the music.
Descriptive statistics show that only 15% of the repondents are less of a music fan. However, nearly 40% claim to be about the same, 30% are sonewhat more, and 17% are a lot more interested in music than others they know. The mean number of CDs owned is 103.
In the second part of the survey the respondents were asked to attach dollar value to two groups of albums they have. The authors presented them a list of 261 albums certified by RIAA as having sold 2 million or more copies since 1999. Further, the respondents were asked to list all albums they have obtained in the past year, regardless of purchasing, downloading, or as a gift. The valuation of albums reached from US$ 50,000 to zero, with median value of US$ 100 per hit album. However, bought albums are valued higher (US$ 15.25 on average) than downloaded albums (US$ 12.70 on average).
To control the results of the first survey, a second one was administered, asking about both ex ante and ex post valuations of the 261 albums in the hit sample. The mean ex ante valuation was nearly US$ 16.00, while the mean ex post valuation decreased to US$ 13.39.
In the next step, the authors conducted a regression analysis to measure the impact of downloading on record sales using Internet access speed as instrument. The results indicate downloading reduces expenditure on hit albums from 1999 to 2003 by US$ 25 per capita. This leads to a 20% decrease in record sales. In addition downloaded hit albums are valued 33% below purchased albums. For current albums the quotient increases to 39%.
However, the authors also tried to figure out the impact of downloading on the social welfare. They calculated that the total downloader surplus reaches US$ 6,910, “(…) and the overall consumer surplus under downloading is US$ 6,873” (Rob and Waldfogel 2004: 26). “In per capita terms, consumers spend $126 without downloading and $101 with downloading. Downloading increases consumer welfare by $70 per capita for sample individuals” (Rob and Waldfogel 2004: 27).
Rob, Rafael and Joel Waldfogel, 2004, Piracy on the High C’s. Music Downloading, Sales Displacement, and Social Welfare in a Sample of College Students. NBER Working Paper No. W10874.
Rob, Rafael and Joel Waldfogel, 2006, “Piracy on the High C’s. Music Downloading, Sales Displacement, and Social Welfare in a Sample of College Students.” Journal of Law and Economics, Vol. 49, No. 1 (April 2006): pp. 91-114.
In part 14 a Korean study by Seonmi Lee on the impact of file sharing on music sales will be discussed.