File Sharing on Album Sales

I quantify the relationship between private–network file sharing activity and album sales in the BitTorrent era using a panel of 2,109 albums’ U.S. sales and file sharing downloads during 2008. Exogenous shocks to file sharing capacity address the simultaneity problem. In theory, piracy could crowd out sales by building file sharing capacity or increase them through word of mouth. I find evidence that file sharing decreases album sales for top–tier artists, but the economic impact is quite modest. However, file sharing seems to help mid–tier artists and have little effect on lower–tier artists. The results are consistent with the claim that word of mouth is stronger for lesser–known artists and that digital sales are the most vulnerable to increases in file sharing capacity. JEL–Classification: L82, L86, O34