The Music Industry as a Vehicle for Economic Analysis

Abstract

Issues arising in the music industry in response to the availability of digital music files provide an opportunity for exposing undergraduate students to economic analyses rarely covered in the undergraduate economics curriculum. Three of these analyses are covered here: the optimal copyright term, the effect of piracy or illegal file sharing, and the economics of multisided markets. These analyses also apply to the book publishing, newspaper, and motion picture industries to varying degrees. While the mathematical and graphical treatments shown here are likely too advanced for the typical principles course, they are suitable for upper-level undergraduate courses such as Intermediate Economic Theory, Business and Government, Public Policy, Managerial Economics, Music/Media/Entertainment Economics, or others at the discretion of the instructor.

Keywords:

• copyright
• file sharing
• piracy
• two-sided markets

JEL codes:

• A22
• D40
• L82
• 033

Notes

¹The problem for the firm can be written as follows. which can be rearranged as (p_i − c_i)(∂Q_i/∂p_i) + (p_j − c_j)(∂Q_j/∂p_j) = −Q_i This can be converted to an elasticity form: (p_i − c_i)/p_i + [{(p_j − c_j)/p_i}{(∂Q_j/∂p_j)/(∂Q_i/∂p_i)}] = ( − Q_i/p_i)/(∂Q_i/∂p_i) = −1/E_i where E_i is the own-price elasticity of demand in market i. Now call the bracketed term X_ji, for the external effect on profits in market j from a change in p_i, and we have