Microeconomics Report: Impact of P2P File Sharing on Music Industry

This microeconomics report examines the impact of peer-to-peer (P2P) file sharing on the recorded music industry. It explores the economic concepts of demand and supply, consumer surplus, and producer surplus within this context. The report analyzes how P2P technology has affected the revenue of the recorded music industry, considering both positive and negative impacts, including copyright violations and the closure of music stores. The analysis incorporates graphical representations of supply and demand curves to illustrate the effects of file sharing on market prices and surpluses. The critique section acknowledges the complexities of consumer behavior and product quality preferences. The report concludes by summarizing the key arguments and their implications for the music industry's economic landscape. The report also discusses the ethical issues of illegal music downloads.

Running head: MICROECONOMICS
Microeconomics
Name of the student
Name of the university
Author Note

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Table of Contents
Issues:.........................................................................................................................................2
Analysis:.....................................................................................................................................2
Position:......................................................................................................................................3
Critique:......................................................................................................................................5
References:.................................................................................................................................6

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Issues:
Now a days, people receive their desired music through per-to-peer (P2P) file sharing.
However, this P2P technology has become a debatable issue among economists and music
industries regarding its impact on recorded music industry (Demers, Piereson, Cianci and
Welsh 2018). Based on some economists, this file sharing technology has adversely affected
the revenue of this recorded music industry while, according to some other economists this
technology has increased the revenue of this concerned industry through buying online music
albums. However, this P2P file sharing technology has practiced illegal activities by
providing free downloaded songs or at comparatively lower costs than common market. In
this context, the concept of copyright violation has occurred (Danaher, Smith and Telang
2017). Most of the economists have intended to establish the impact of file sharing on
recorded music industry though due to insufficient data, they have remained unable to
implement any statistical analysis. Hence, it has also become difficult for music industries to
analyse the trend of demand and supply of their products within market as people have
bought them from other sources (Waldfogel 2017). Moreover, due to this lack of analysis,
many music-selling stores have closed their business operations. Hence, the impact of P2P
file sharing on music recording industry can be analysed with the help of demand and supply
concepts along with producer and consumer surplus through considering some ethics related
to this industry.
Analysis:
The concept of fundamental demand and supply operates within the music industry,
where price plays a significant role. People demand music album by higher amount while
prices of those products remain low and the opposite situation occurs when prices of those
music album goes down. However, demand for music also depends on some other factors, for
instance, tastes, preferences and income of consumer and prices of related commodities
(Herings, Peeters and Yang 2018). For recorded music, its relative commodities are the same
music albums available on the online website with comparatively lower prices. Moreover, it
can be considered that people like to purchase online music without considering its quality of
music. Hence, basic concept regarding the law of demand can be seen. The chief ethical
issue, which leads the demand for recorded music in this way, is the amount of price (Skog,
Wimelius and Sandberg 2018). As people get same album with different prices, they chose to
purchase the one, which has comparatively lower price without considering that whether this
process is illegal, or not. To measure the demand for illegal music, some assumptions can be
considered as well. For instance, some people like to download music freely or with lower

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costs to listen to music before purchasing the CD from market. Moreover, there are some
other people, who prefer to download music through file sharing technology only. On the
other side, supply side concept can be discussed as well. There are various online companies,
who have increased supply of music with lower prices (Vendrell-Herrero, Myrthianos, Parry
and Bustinza 2017). Consequently, demand for recorded music has decreased and this in turn
has decreased the supply of recorded music. This is the basic reason behind closing down of
various music stores.
The concept of consumer surplus and demand surplus are also essential to discuss
over here. Due to this illegal availability of music, consumer surplus increases while
producers of recorded music have lost their surplus amount (Aguiar and Waldfogel 2018). In
this context, concepts of consumer surplus and producer surplus are essential to discuss.
Consumer surplus is the difference between two prices, which the person is willing to pay
and the amount, which is actually paid. As the concerned person gets opportunity to pay
fewer amounts for a music album, the amount of consumer surplus can increase significantly.
On the other side, producer surplus refers the situation at which the concerned person intends
to sell product and the actual market price, at which the product is actually sold. For
recorded music industry, this amount decreases due to fewer amount of demand. To describe
and support these arguments, proper diagrammatical representation can be used.
Position:
As various online companies have increased their supply of music through online file
sharing option, it becomes easier for people to obtain ample amount of their desired music
albums through this technology. This consequence in turn decreases their desire to go for a
recorded music. Moreover, due to huge amount of supply, price also decreases. This concept
can be represented with the help of following diagram.

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Figure 1: Demand and supply curve of illegal music companies
Source: (created by author)
Figure 1 has represented the initial demand and supply curve of illegal music,
available through file sharing technology, by D and S0 curves, respectively. The demand
curve has negative slope indicating inverse relation between price and quantity demanded.
On the other side, supply curve has a positive slope to represent positive relation between
price and quantity supplied. As supply of music album increases, the curve shifts from S0 to
S1. Consequently, market price decreases from P0 to P1. Moreover, the initial amount of
consumer surplus is the area of triangle ABP0 while after decreasing price, this amount
becomes the area of triangle ACP1. The area of second triangle is comparatively higher than
the first one (Aguiar and Waldfogel 2018). Hence, it supports the concept of increasing
amount of consumer surplus.
On the contrary, being substitute product, this decreasing price leads the demand for
recorded music to decrease at given its existing price level.

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Figure 2: Demand and supply curve of recorded music companies
Source: (created by author)
Figure 2 has represented that demand for recorded music has decreased by Q0Q1
while its price remains at P0.
Critique:
The concept of music industry has some criticism as well. It can be considered that
people use this file sharing technique only to listen to music for buying recorded version of
this album. This concept does not consider the concept of decreasing demand for recorded
music. Moreover, for customers, quality of the product plays a significant role (Dilmperi, A.,
King and Dennis 2017). Thus, they may prefer to buy recorded music. However, those
concepts cannot support the real scenario and consequently, demand for stores has declined
and they have stopped selling recorded music.

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References:
Aguiar, L. and Waldfogel, J., 2018. Quality Predictability and the Welfare Benefits from
New Products: Evidence from the Digitization of Recorded Music. Journal of
Political Economy, 126(2), pp.492-524.
Danaher, B., Smith, M.D. and Telang, R., 2017. Copyright enforcement in the digital age:
empirical evidence and policy implications. Communications of the ACM, 60(2),
pp.68-75.
Demers, G.L., Piereson, J.W., Cianci, M.A. and Welsh, P.L., 2018. The Antisocial Effects of
Social Media and How Colleges and Universities Can Manage Related Litigation
Risks. Pittsburgh Journal of Technology Law and Policy, 18(1).
Dilmperi, A., King, T. and Dennis, C., 2017. Toward a Framework for Identifying Attitudes
and Intentions to Music Acquisition from Legal and Illegal Channels. Psychology &
Marketing, 34(4), pp.428-447.
Herings, P.J.J., Peeters, R. and Yang, M.S., 2018. Piracy on the Internet: Accommodate it or
fight it? A dynamic approach. European Journal of Operational Research, 266(1),
pp.328-339.
Skog, D., Wimelius, H. and Sandberg, J., 2018. Digital Service Platform Evolution: How
Spotify Leveraged Boundary Resources to Become a Global Leader in Music
Streaming. In Hawaii International Conference on System Sciences (HICSS)(pp.
4564-4573).
Vendrell-Herrero, F., Myrthianos, V., Parry, G. and Bustinza, O.F., 2017. Digital dark matter
within product service systems. Competitiveness Review: An International Business
Journal, 27(1), pp.62-79.
Waldfogel, J., 2017. How Digitization Has Created a Golden Age of Music, Movies, Books,
and Television. Journal of Economic Perspectives, 31(3), pp.195-214.