Tuesday, January 6, 2009

Price, sales and music piracy

In August of 2007, Ars Technica pointed out that the impact of piracy on the music business is probably over-estimated. The demand for music at a near-zero price is, after all, much larger than the demand for music at $20 a CD.

An example: Assume a world where there is no piracy, songs cost $1 each, and the public buys 10,000 of them. Now suppose a pirate enters the market, giving away songs at $0 each, and that 30,000 people are willing to listen to free songs. Even if the number of songs sold legally stayed at 10,000, piracy could be measured as being twice the volume of sales. This would be misleading, though, since the extra 20,000 songs are not lost sales. They're evidence of a downward-sloping demand curve that continues past the price that legal suppliers are willing to charge.

1 comment:

momo said...

i agree with you in the fact that no one would turn down "free songs", however i strongly believe that individuals sooner or later will buy the product as with out a steady inflow of cash artists and producers will not be able to create such things and therefore, we as consumers will suffer.