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CESifo Economic Studies Advance Access published online on December 23, 2008
CESifo Economic Studies, doi:10.1093/cesifo/ifn036
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© The Author 2008. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

On the Impact of Digital Music Distribution

Illtae Ahn* and Kiho Yoon{dagger}

* Department of Economics, Chung-Ang University, Heuksuk-dong, Dongjak-gu, Seoul, Korea 156-756. e-mail: illtae{at}cau.ac.kr
{dagger}Department of Economics, Korea University, Anam-dong, Sungbuk-gu, Seoul, Korea 136-701. e-mail: kiho{at}korea.ac.kr

We present a framework to evaluate the impact of digital music distribution. We set up a representative model that enables the comparative static analysis. We then interpret two empirical observations about the music industry, the sales decline and the price constancy, and fit the model to these observations. We find that, while the impact of digitalization on the producers’ profits is probably negative, it may not be as severe as the observed impact on the quantity. On the other hand, the impact of digitalization on the consumer surplus is unambiguously positive. The impact on the social welfare is rather ambiguous in general, but the social welfare may increase for plausible parameter values. (JEL codes: K11, L86, O34)

Key Words: Music industry • digital music • copyright • file sharing.


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