The Effect of File Sharing on Record Sales: An Empirical Analysis

For industries ranging from software to pharmaceuticals and entertainment, there is an intense debate about the level of protection for intellectual property that is necessary to ensure innovation. In the case of digital information goods, web-based technologies provide a natural crucible to assess the implications of reduced protection because these technologies have drastically lowered the cost of copying information. In this paper, we study the impact of filesharing technologies on the music industry. In particular, we analyze if file sharing has reduced the legal sales of music. While this question is receiving considerable attention in academia, industry and in Congress, we are the first to study the phenomenon employing data on actual downloads of music files. We match 0.01 % of the world’s downloads to U.S. sales data for a large number of albums. To establish causality, we instrument for downloads using data on international school holidays and technical features related to file sharing. Downloads have an effect on sales which is statistically indistinguishable from zero. Moreover, our estimates are of moderate economic significance and are inconsistent with claims that file sharing can explain th