This article quantifies the effects of private-network music sharing on aggregate album sales in the BitTorrent era using a panel of US sales and private-network downloads for 2109 albums during 2008. Exogenous shocks to the network’s sharing constraints address the simultaneity problem. In theory, private-network activity could crowd out sales by building aggregate file sharing capacity or increase sales through word of mouth. The author finds evidence that private-network sharing results in decreased album sales for top-tier artists, though the economic impact is quite modest. However, private-network activity seems to help mid-tier artists. The results are consistent with claims that word of mouth is stronger for lesser-known artists and that digital sales are more vulnerable to increases in file sharing capacity. The author discusses policy implications and alternatives to costly legal efforts to shut down private file sharing networks.

View Article