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4.6.2004
File-Sharing and Market Power
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Broadly speaking, the debate over music file-sharing's propriety is fought on two fronts, one moral and one economic. The former ground is where the passion comes from; the latter arguments at least admit common set of criteria for discussion. That's why the study purporting to show file-sharing does not affect music sales is welcome. There is at least something to engage beyond a crude emotivism -- "your a thief!" "Culture is too important to be affected by things so crass as the profit motive!"
Let's assume as per the study that file-sharing does not affect music sales; to the contrary, let's posit that it is a positive good for sales. If this is so, then there must be: a) a structural defect in the recording industry preventing the competing firms from adopting a "pro-file sharing" strategy; and, b) reveal incorrigible and durable stupidity on the part of the recording industry. Despite a jejeune enthusiasm from some quarters for this being the case, there is no evidence that it is so.
Now, allegations that the recording industry acts as an effective cartel are common Internet fodder. But the allegations are unavailing. Though concentrated, the recording industry has too many firms, and importantly, is too easy to enter in the Internet age, to act as a unified cartel. There is simply no structural reason to believe that the industry is not competitive. This being so, then the beneficial effects of file-sharing should be adopted by one, and eventually all, competitors. As for the second point, again it must be premised on an unspoken assumption that the recording industry acts as an effective cartel. There is simply no evidence that, even with intent to cartelize the industry, that such a scheme could work -- too many firms, too high coordination costs and too many incentives to cheat for a cartel to work. Further, even if it is a cartel, why wouldn't it adopt an pro-file sharing strategy that maximizes its revenues?
My intuition is that the default property regime we have now is still superior and will yield different business strategies depending on the artist. For a new act, the labels might be more inclined to "give away" recordings and encourage legal file-sharing to start some buzz; for established acts, whose commercial value is established, the right-holder will demand payment for the permutations of the product. Finally, add the fact that home recording is cheaper and easier than ever, plus the Internet makes distribution nearly-costless, I fail to see how a recording industry bent on bottling up music can succeed.
The default rights that our property system gives to copyright holders still seem superior to a different default rule as a means to stimulate production. In a competitive system, you would expect the holders of that right to act in their long-term interest to maximize revenue. If this means giving away some content or endorsing file-sharing for certain content or certain artists, then it shoud happen.
The genius of the property system is that it entrusts the property-holder--goaded by the market--to do what is in consumers' interests. I simply don't see how the current copyright regime and recording industry don't do that. Copyright can be incrementally improved, to be sure, but eviscerated by expansive fair use interpretations, no.
posted by Ray : 4/6/2004 06:28:12 AM
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