Three Essays on Economics in the Music Industry

In my first chapter I examine the ability of producers to profitably price discriminate information goods in the music industry given the presence of peer-to-peer file sharing networks. Previous economic literature suggests that it is not profitable to price discriminate information goods. The introduction of a non-pecuniary competition from peer-to-peer file sharing networks into the model makes price discrimination of an information good profitable. In this instance, price discrimination allows producers to recapture more of the market that was lost to peer-to-peer file sharing than is lost as consumers switch to a lower price version of the information good. In my second chapter I examine the emergence of multiple rights deals in the music industry to determine the implications they have on market efficiency in the music industry. Framing this within the context of a principle multi-agent model with positive production externalities, I find that with multiple independent agents production externalities are not fully captured resulting significant underproduction beyond that of the traditional principal-agent problem. Multiple rights deals allow the agent to capture the full benefit of the production externality, however, they also induce in additional inefficiencies in the principal-agent relationship. In all but the highest state of nature, the additional inefficiencies induced in the principal-agent relationship dominate the efficiency gains of internalizing the externality. My final chapter examines the recent events in the music industry from a law and economics approach. The advent of file sharing represented an unprecedented threat to the music industry, as it removed most of the physical barriers to copyright infringement. I begin by setting the legal framework within which the music industry operates. I briefly analyze the application of copyright law to the music industry, and focus on the economic theory of optimal copyright protection in the music industry. I examine several of the major past legal decisions that helped to shape and inform the discussion of copyright and extend this analysis to the most recent legal decisions involving file sharing and copyright in the music industry