Patrick Waelbroeck

Piracy of Digital Products: A Critical Review of the Theoretical Literature

Digital products can be copied almost at no cost and are subject to non-commercial copying by final consumers. Because the copy of a copy typically does not deteriorate in quality, copies can become available on a large scale basis - this can be illustrated by the surge of file-sharing networks. In this paper we provide a critical overview of the theoretical literature that addresses the economic consequences of end-user copying. We analyze basic models of piracy, models with indirect appropriation, models with network effects, and models with asymmetric information. We discuss the applicability of the different modeling strategies to a number of industries such as software, video and computer games, music, and movies.

Pirates or Explorers? Analysis of Music Consumption in French Graduate Schools

A release device is actuated to release a workpiece by operation of either of two elongated shape memory metal alloy (SMMA) members. Each SMMA member has on one end a feature that engages a fitting on the workpiece, while its other end is mounted to a housing. A heater on each SMMA member raises its temperature to a transition temperature at which it returns to an unstressed (e.g. shorter) length, thereby releasing the workpiece. The two SMMA elements may be disposed in opposite directions from the housing or may be coaxial or offset and disposed in the same direction.

File-Sharing, Sampling, and Music Distribution

The use of file-sharing technologies, so-called Peer-to-Peer (P2P) networks, to copy music files has become common since the arrival of Napster. P2P networks may actually improve the matching between products and buyers - we call this the matching effect. For a label the downside of P2P networks is that consumers receive a copy which, although it is an imperfect substitute to the original, may reduce their willingness-to-pay for the original - we call this the competition effect. We show that the matching effect may dominate so that a label’s profits are higher with P2P networks than without. Furthermore, we show that the existence of P2P networks may alter the standard business model: sampling may replace costly marketing and promotion. This may allow labels to increase profits in spite of lower revenues.

Peer-to-peer, piracy and the copyright law: implications for consumers and artists

This innovative and insightful book, written by some of the leading academics in the field, advances research frontiers on intellectual property and copyright issues. Topics addressed include: peer-to-peer music file sharing, optimal fair use standards, the benefits of copyright collectives, copyright and market entry, alternatives to copyright, the impact of copyright on knowledge production, the proper balance between copyright and competition law, and the application of systematic principles to issues that arise at the periphery of intellectual property law – all with an eye toward economics.

Superstars and outsiders in online markets: An empirical analysis of electronic books

Recent rapid growth in electronic book sales has raised a critical question for publishers and bookstores: do e-books cannibalize or increase print sales? In this article, we compare the best-selling titles sold on www.Amazon.com in print or electronic Kindle formats during the period from November 2007 to July 2010. Using econometric methods, we find that the cannibalization of print sales by e-books is more likely to occur for superstar titles written by successful authors. However, we find that a new segment of successful electronic titles that are not best-selling in print format emerge; these books would probably have been unpopular without the new Kindle store and therefore this new distribution channel has expanded the market. We refer to these titles as digital outsiders. The latter are characterized not only by lower prices but also by older release dates. They also include titles that are only released in electronic format. We then argue that electronic books increase the market viability of old print releases. Finally we identify a category that we call print-preferred books that are top sellers in print but not as e-books for reasons of color, graphics, or the need to navigate non-linearly, a style to which the current generation of e-book readers are not well adapted.

Digital Music: Economic Perspectives

The music industry is facing the development of online P2P networks, direct download services and other forms of digital piracy, while at the same time the format and promotion of pre-recorded music are undergoing major transformations with the advent of MP3 and new forms of collective promotion, particularly through online communities and social networks. The chapter is organized as follows. First, I analyze how digital piracy and digital music distribution are changing the demand for pre-recorded music. Next, I review new business models and give perspectives on how cloud services will challenge existing offers. I conclude the chapter and discusses the policy implications of digital music distribution.

Do Online Customer Reviews Matter? Evidence from the Video Game Industry

This paper analyzes the impact of online customer reviews on purchasing decisions and the influence of online customer or peer reviews compared to other channels of information such as offline press (expert reviews) and trial versions (personal reviews). Using 7,024 answers of an anonymous online survey administrated from June 18 to July 5, 2004, on one of the leading websites dedicated to video games in France, we show that i. online peer reviews gathered by consumers before purchasing video games positively influence purchasing decisions; ii. the effect of online peer reviews is as important as the effects of personal and expert reviews; iii. online customer reviews complement trial versions and expert reviews from magazines.

“Selling less of more?” The impact of digitization on record companies

In this paper we use data from a survey of 151 French record companies to test the “long tail theory” at the level of the firm. More specifically, we test whether, following the “selling less of more” principle coined by Anderson (2006), record companies that have adapted to digitization (at various levels: artists’ scouting, distribution and promotion) release more new albums without having higher overall sales. We construct a production function in which the output is produced from conventional inputs of labor and capital, as well as inputs that are more specific to the recorded music industry. We consider two types of output: a commercial output (albums sales) and a creative output (number of new albums released). We show that labels that have adapted to digitization are more efficient in respect of creative output, but that there is no effect of adaptation to digitization on the commercial output, which is consistent with the predictions of the long tail theory.

Fighting Free with Free: Freemium vs. Piracy

In this article, we show how new online music streaming services such as Spotify and Deezer can deter piracy. These new services monetize large audiences with low willingness to pay for music. We analyze a simple freemium model in which a firm offers both a free version and a premium version. The firm can restrict the use of the free version. Consumers can choose between the free and the premium version, but can also get a digital copy. More restrictions can increase the number of premium users but diverts other users to piracy. On the contrary, fewer restrictions deter online piracy. We therefore challenge the idea that without strong copyright laws, there is no market for online music. We also argue that there are market solutions to fight free with free that better segment consumers audiences according to their willingness to pay for digital music.

Music Variety and Retail Concentration

In this paper, we examine the impact of horizontal and vertical market structure on product variety. We consider a market for horizontally differentiated products in which the cost of launching a new product is fixed and spread between the manufacturing and the retail industries. While this framework can be applied to a large number of industries we focus on music variety. We show that a vertically intergrated firm offers a wider variety of products than a chain of monopolies. If the cost of launching a new product is equally shared among the vertical structure or mostly supported by upstream firms, retail competition partially restores the incentives to innovate of the vertical structure. Yet when the cost of launching a new product is mostly supported by the retail sector, downstream competition leads to even more innovation than vertical integration.