Piracy on the high C’s: Music downloading, sales displacement, and social welfare in a sample of college students

Recording industry revenue has fallen sharply in the last 3 years, and some—but not all—observers attribute this to file sharing. We collect new data on albums obtained via purchase and downloading, as well as consumers ’ valuations of these albums, among a sample of U.S. college students in 2003. We provide new estimates of sales displacement induced by downloading, using both ordinary least squares and an instrumental variables approach with access to broadband as a source of exogenous variation in downloading. We find that each album download reduces purchases by about.2 in our sample, although possibly by much more. Our valuation data allow us to measure the effects of downloading on welfare as well as expenditure in a subsample of University of Pennsylvania undergraduates, and we find that down-loading reduces their per capita expenditure (on hit albums released 1999–2003) from $126 to $101 but raises per capita consumers ’ surplus by $70. No black flags with skull and crossbones, no cutlasses, cannons, or daggers identify today’s pirates. You can’t see them coming; there’s no warning shot across your bow. Yet rest assured the pirates are out there because today there is plenty of gold (and platinum and diamonds) to be had. [Recording Industry Associ-ation of America 2003] I