Wednesday, November 23, 2005

Complements and Substitutes

This excellent post details the observed changes in music sales due to P2P downloads. Remember -- although downloading an mp3 is clearly a substitute to buying an album, it is also a complement since you may try a song online and then go and buy the album. Often, it is difficult to tell whether two goods are complements or substitutes, there are elements of both.

It seems that the complement and substitute effect is segmented in music downloads:
First is the differential impact of file-sharing on an artist depending on their existing popularity. According to Blackburn who investigates this issue the ‘bottom’ 3/4 of artists sell more as a consequence of file-sharing while the top 1/4 sell less.
So, popular songs and artists get reduced sales because of downloads, while obscure artists get higher sales. This makes sense if you imagine someone hearing a song on the radio (popular) and then downloading it instead of buying the album (substitution) compared to someone who has heard about an artist from a friend (obscure) and then downloads some songs to see if they like them (complementary).

The current music business is built around hits -- this represents a dramatic change in how people consumer music. (Thanks to boing boing and marginal revolution)


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