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G604 IO II Eric Rasmusen, erasmuse@indiana 14 April 2006

G604 IO II Eric Rasmusen, erasmuse@indiana.edu 14 April 2006 http://www.unc.edu/~cigar/papers/FileSharing_June2005_final.pdf Felix Oberholzer and Ko`leman Strumpf, "The Effect of File Sharing on Record Sales An Empirical Analysis,". Readings.

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G604 IO II Eric Rasmusen, erasmuse@indiana 14 April 2006

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  1. G604 IO II Eric Rasmusen, erasmuse@indiana.edu 14 April 2006 http://www.unc.edu/~cigar/papers/FileSharing_June2005_final.pdf Felix Oberholzer and Ko`leman Strumpf, "The Effect of File Sharing on Record Sales An Empirical Analysis,"

  2. Readings • 13 April, Thursday. File Sharing and Record Sales,     Felix Oberholzer and Koleman Strumpf, "The Effect of File Sharing on Record Sales An Empirical Analysis," Harvard Business School (March 2004). • http://www.unc.edu/~cigar/papers/FileSharing_June2005_final.pdf

  3. Does Filesharing Hurt Music Sales? • Yes– it is a substitute for buying • No– it gives free samples and encourages buying (newspapers)

  4. Does Industry Opposition Tell Us Filesharing Hurts Sales? • O-S: No, the industry is stupid--- or at least makes mistakes sometimes. • I disagree. The mistakes they describe (footnote 2) are mistaken predictions, not mistaken evaluations of current profits.

  5. Picking a Null Hypothesis P. 4: Drawing on our most precise estimates, we can statistically reject the null that even a quarter of the recent sales decline stems from file sharing. At the same time we can never reject the hypothesis that downloads have no effect on overall sales.

  6. Summer Sales We document that the share of sales during the summer months when fewer students have access to high-speed campus Internet connections has not changed as a result of P2P.

  7. So Why Are Music Sales Down? Finally we document that the recording industry often experiences sales reductions, including a recent episode with a sharper reduction than the current period. P. 4

  8. The Data • Weekly sales in 2002 of 680 albums which have 10,271 songs, a stratified sample (they don’t say how they sampled—BAD) The p. 10 K-S distribution test is meaningless, since they don’t say what they are testing. On p. 11 they tell us a KS test of the sample over TIME is OK. 2. U.S. individual song downloads over 4 months in 2002. (1.75 million? 260,889?) They find 47,709 match their 680 albums.

  9. Basic Regression (p. 13) • P. S is sales of the album, X is album characteristics, D is “number of downloads” Question: What is D? Downloads of individual songs from an album, I think, but they don’t say, even though that is hugely important. Notice that they don’t use any individual song characteristics, just album characteristics.

  10. Variables to Add 1. A polynomial time trend of degree 6 (!) 2. Album fixed effects 3. Why not use time fixed effects? – probably because they want to use other time variables. Their sales data is 2nd half of 2002--- that is, it includes Christmas sales. They don’t give summary stats or a graph of sales or downloads over time.

  11. Identification When unobservables mu is big because an album is good, so is D, the number of downloads. So, it will seem as if having lots of downloads also causes high sales. We need an instrument for D: something which is correlated with downloads, but not with sales. Difficulty of downloading affects downloads, but does not affect sales directly (it does via its effect on Downloads, but that is OK for us)

  12. IV: Variables for Difficulty of Downloading I • 1. Album-specific, fixed over time • Spelling difficulty of the song names in the album Length of songs in the album • 2. Time-specific, fixed across albums • German school holidays (because German kids upload songs, making it easier for Americans to download) • Are German holidays uncorrelated with US music SALES? (Xmas?) • “Internet weather”– 4 congestion variables • 3. Varying with both album and time period…

  13. IV: Variables for Difficulty of Downloading II 3. Varying with both album and time period • Mean album length of albums in that same music category (limits on storage space-- ??? Are these a constraint? Are albums erased? No—archived, is claim, p. 17) • (Germans on vacation)*(album performers are on tour in Germany)

  14. Here, go the tables in the paper: • http://www.unc.edu/~cigar/papers/FileSharing_June2005_final.pdf

  15. A link to the course website http://www.rasmusen.org/g604/0.g604.htm

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