Joel
Waldfogel
Current
Projects and Working Papers
October
2011
Most
of my recent work falls into two broad areas, intellectual property piracy and
the benefits that consumers derive from differentiated product markets. Lately I’ve been working on pricing of
digital products, the supply of new music since Napster, and globalization of
the music industry. Abstracts of
current and recent work appear below with links to the papers that are
available in draft form.
Papers
Recent
technological changes may have altered the balance between technology and
copyright law for digital products. While file-sharing has reduced revenue,
other technological changes have reduced the costs of bringing creative works
to market. As a result, we don’t know whether the effective copyright protection
currently available provides adequate incentives to bring forth a steady stream
of valuable new products. This paper assesses the quality of new recorded music
since Napster, using three independent approaches. The first is an index of the
quantity of high-quality music based on critics’ retrospective lists. The
second and third approaches rely directly on music sales and airplay
data, respectively, using of the idea that if one vintage’s music is better
than another’s, its superior quality should generate higher sales or greater
airplay through time, after accounting for depreciation. The three resulting indices
of vintage quality for the past half-century are both consistent with each
other and with other historical accounts of recorded music quality. There is no
evidence of a reduction in the quality of music released since Napster, and the
two usage-based indices suggest an increase since 1999. Hence, researchers and
policymakers thinking about the strength of copyright protection should
supplement their attention to producer surplus with concern for consumer
surplus as well.
2. Bye, Bye, Miss American
Pie? The Supply of New Recorded Music since Napster
In the decade since Napster, research has focussed attention
on whether file-sharing undermines the protection that copyright affords
recorded music, and most observers believe that file-sharing undermines the
appropriability of recorded music. For
consumers, however, Napster’s effect on demand is less important than whether
the diminished appropriability will reduce the supply of new recorded
works. The legal monopoly created by
copyright is justified to the extent that it encourages the creation of new
works, but there is little evidence on this relationship. The file-sharing era can be viewed as a
large-scale experiment allowing us to check whether diminished appropriability
stems the supply of new works. We
examine this hypothesis using a novel dataset on the supply of new recorded
music derived from retrospective critical assessments of music such best-of-the-decade
lists. We compare post-Napster album supply to 1) its pre-Napster level, 2)
pre-Napster trends, and 3) a possible control, new song supply following the
iTunes Music Store’s revitalization of the single. We find no evidence that recent changes in
appropriability have affected the quantity of new, acclaimed recorded music
coming to market. We reconcile this
finding of a stable flow of new works in the face of decreased demand with a
discussion of reduced costs of bringing works to market, which we substantiate
with evidence of an increased role of independent labels since Napster.
3.
Music for a Song: An Empirical Look at Uniform Song Pricing and its
Alternatives (with Ben Shiller)
Economists have well-developed theories that challenge the
wisdom of the common practice of uniform pricing. With digital music as its
context, this paper explores the profit and welfare implications of various
alternatives, including song-specific pricing, various forms of bundling,
two-part tariffs, nonlinear pricing, and third-degree price discrimination. Using survey-based data on nearly 1000 students’ valuations of 100
popular songs in early 2008 and early 2009. We find that various
alternatives – including simple schemes such as pure bundling and two-part
tariffs – can raise both producer and consumer surplus. Revenue could be raised
by between a sixth and a third relative to profit-maximizing uniform pricing.
While person-specific uniform pricing can raise revenue by over 50 percent,
none of the non-discriminatory schemes raise revenue’s share of surplus above
40 percent of total surplus. Even with sophisticated pricing, much of the area
under the demand curve for this product cannot be appropriated as revenue.
See
our short essay in VOX EU.
The
Economist has a nice write up.
This
paper is now forthcoming in the Journal of
Industrial Economics.
4.
Pop
Internationalism: Globalization of the Music Industry, 1960-2006 (with
Fernando Ferreira)
Advances
in communication technologies over the past half century have made the cultural
goods of one country more readily available to consumers in another, raising
concerns that cultural products from large economies – in particular the US -
will displace the indigenous cultural products of smaller economies. The debate over trade in cultural products
has been better informed by theory than evidence. The goal of this project is to document some
facts about the global music industry since 1960, using data on popular music charts
from 11 countries (Austria, Brazil, Canada, France, Germany, Italy, Norway,
Sweden, Switzerland, UK, US). Who buys
whose music? How has it changed over
time? And how do music trade patterns
compare with trade patterns for movies?
We find that while Hollywood fare dominates world trade in movies, music
is quite different. While domestic
musical repertoire is disproportionately popular everywhere, repertoire shares
among imports are closer proportional to exporting countries’ GDP shares. Overall, different countries’ musical
repertoires have world shares roughly equal to their GDP shares. Surprisingly, as the world has become better
linked over the past half century, the US has grown less dominant in music
relative to GDP. Since 2000 the trade in
music has been more balanced – in line with GDP shares – than at any time since
1960, and domestic artists have increasing market shares in almost all
markets. These facts are surprising
against the backdrop of technological change that makes trade easier.
See our short essay in VOX EU.
Foreign Policy has a nifty
write up.
5.
Public Monopoly and
Economic Efficiency: Evidence from the Pennsylvania Liquor Control Board's
Entry Decisions (with Katja Seim)
While
private monopolists are generally assumed to maximize profits, the goals of
public enterprises are less well known. Using the example of Pennsylvania's
state liquor retailing monopoly, we use information on store location choices,
prices, wholesale costs, and sales to uncover the goals implicit in its entry
decisions. Does it seek to maximize profits or welfare? We estimate a spatial
model of demand for liquor that allows us to calculate counterfactual
configurations of stores that maximize profit and welfare. We find that welfare
maximizing networks have roughly twice as many stores as would maximize profit.
Moreover, the actual network is much more similar in size and configuration to
the welfare maximizing configuration. An alternative to a state monopoly would
be the common practice of regulated private entry. While such regimes can give
rise to inefficient location decisions, little is known about the size of the
resulting inefficiencies. Even for a given number of stores, a simple
characterization of free entry with our model results in a store configuration
that produces welfare losses of between 3 and 9% of revenue. This is a third to
half of the overall loss from unregulated free entry.
6.
Music File Sharing and Sales Displacement in the
iTunes Era
A
growing empirical literature examines the relationship between music file
sharing and legal purchases of music, but existing studies examine the period
before consumers had attractive legal digital a la carte options. The iTunes Music Store has grown quickly
since its appearance in 2003, and digital music now accounts for a third of US
recorded music sales. Using a new survey of University of Pennsylvania
undergraduates, we ask how music file sharing and sales displacement operate in
the iTunes era, when the alternative to file sharing is purchasing individual
songs, rather than entire albums. We
find large amounts of file sharing in this population. Respondents have more stolen than paid music,
but the music obtained via file sharing is, for the most part, low-valuation
music which the respondents would likely not have purchased. The rate of sales displacement implied by the
relationship between stolen and purchased music across respondents is between
-0.15 and -0.3. That is, an additional
song stolen reduces paid consumption by between a third and a sixth of
song. Perhaps surprisingly, this is
about the same as the CD sales displacement rate found for the pre-iTunes era
using a similar empirical approach on a similar study population.
7.Movie Piracy and Sales Displacement in a Sample of
Chinese College Students (with Jie Bai)
Intellectual
property piracy is widely believed, by authorities in both U.S. industry and
government, to be rampant in China.
Because we lack evidence on the rate at which unpaid consumption
displaces paid consumption, we know little about the size of the effect of
pirate consumption on the volume of paid consumption. We provide direct evidence on both the volume
of unpaid consumption and the rate of sales displacement for movies in China
using two surveys administered in late 2008 and mid-2009. First, using a survey of Chinese college
students’ movie consumption and an empirical approach parallel to a similar
recent study of U.S. college students, we find that three quarters of movie
consumption is unpaid and that each instance of unpaid consumption displaces
0.14 paid consumption instances. Second,
a survey of online Chinese consumers reveals similar patterns of paid and
unpaid movie consumption but a displacement rate of roughly zero. We speculate on the small displacement rate
finding relative to most of the piracy literature.
8.
The Challenge of Revenue Sharing with Bundled Pricing:
An Application to Digital Music (with Ben Shiller)
Bundling
can increase revenue and profits relative to selling products on a standalone
basis, and this is an especially attractive strategy for zero-marginal-cost
information products. Despite the clear
benefits of bundling, it has one major problem:
bundling produces revenue that is not readily attributable to particular
pieces of intellectual property, creating a revenue division problem. The Shapley value provides a well-motivated
solution to this problem, and we use unique survey data to create measures of
bundle value and, in turn, to estimate Shapley values for each of 50 bundle
elements. We then evaluate feasible
revenue sharing schemes, including equal sharing, proportional sharing, and the
modified Shapley value of Ginsburgh and Zang (2003, 2004).
We first document that the Shapley value is highly incentive compatible
(all bundle elements fare better inside the bundle than they do outside on a
standalone basis). We then evaluate the
feasible schemes according to both their incentive compatibility and their
similarity with the Shapley value. We find,
not surprisingly, that the feasible schemes are less incentive compatible than
the Shapley value. Among the feasible
schemes, equal sharing performs worst while the GZ scheme performs best and
substantially better than proportional schemes in current practice.
In
2009 Princeton published my fun book, Scroogenomics.
Four
years ago I finished a book, The Tyranny
of the Market: Why You Can’t Always Get What You Want. More information on that here.