Supply Responses to Digital Distribution: Recorded Music and Live Performances

OCTOBER 16, 2006

A while back someone pointed me at an interesting paper by Julie Mortimer and Alan Sorenson entitled, Supply Responses to Digital Distribution: Recorded Music and Live Performances, which they presented at the 2006 AEA conference. I’ve only had a chance to glance through this but it appears to have some interesting data – and some interesting conclusions – for those interested in of the impact of unauthorized filesharing on artists, consumers and society as a whole.


Technologies for reproducing and redistributing digital goods have made it more difficult to earn profits from their sale, leading to concerns that socially valuable digital products with non-convex production technologies may not be brought to market. However, digital goods are often jointly supplied with non-digital products, and changes in distribution technologies affect not only the market for the digital product, but also the pricing and profitability of the non-digital good. We outline a simple model illustrating these effects in the music industry, and test the model’s implications using detailed data on weekly CD sales and individual concert performances for nearly 2,000 musical artists over a ten-year period. We show that while sales of recorded music declined after the introduction of file-sharing, concert revenues and the number of artists performing concerts increased dramatically. We examine whether these changes were most pronounced among artists or markets where file-sharing was likely to be most significant. Overall, the patterns in the data suggest that while file-sharing may have eroded profits from CD sales, it also increased the profitability of live performances.