File sharing and the structure of the music market

For as long as music has existed, artists have lived from performing. The advent of packaged music (radio, TV, disk, tape or CD) has changed little to this, as the new medium has been more about promoting the artist than making money for the artist, with few exceptions. The ones making money from sales are the record companies, and the appearance on file-sharing is challenging their business model while not affecting the artist's way of living. In fact, the latter appreciate the zero marginal cost promotion. But the record companies want to survive.



Ralf Dewenter, Justus Haucap and Tobias Wenzel study the interaction of record and ticket sales under the assumption that both benefit from each other. Clearly, the impact of file sharing is ambiguous: it may increase record sales if people discover an artist through file-sharing and attend a show. But some potential sales are lost when a very close substitute is available for free. The solution for the record companies to to take over the management of concerts as well. Whether the artists want to go along with that is another question.

Charities: competition vs. the social planner

Charities need to raise funds, and it is costly doing so. As the number of charities increases, so do these costs. This raises the question whether there is an optimal number of charities and whether some sort of regulation can bring us closer to this optimal number.

Murat Mungan and Yoruk Barls should that free competition leads to a suboptimal number of charities, in particular because some donors are solicited by several charities. In this respect, is a regulated monopoly the solution? One would think this is not optimal because charities pursue very diverse goals. Mugan and Barls show that in a spatial model this charity "ideologies," some extent of competition is good for maximizing net charity revenues as long as the fixed costs is sufficiently low. That seems like a trivially simple result, but it one worth pointing out. The way charities are regulated is by restricting entry and then taxing or subsidizing them to get the "right" fix cost.

Free textbooks

I have reported before about what a rip-off textbooks are. The obvious solution is to teach without one, but today's students insist on them. But help seems to appear on the horizon, in the from of Flat World Knowledge, a commercial publisher that sells hard copies, at lower prices than the competition, and offer the PDF files for free. This is quite an interesting commercial strategy, which has also been adopted by some open access journals that provide print-on-demand services at some cost but otherwise keep the journal free. In economics, Theoretical Economics comes to mind.

Hattip: Against Monopoly

Google Knol is not Wikipedia

Google has recently announced that its Knol initiative has reached 100,000 entries in only six months. Knol is supposed to be Google's answer to Wikipedia, doing it better. How? By having entries managed by named people, instead of anonymously. And these editors can earn some share of advertising revenue. That sounds like a good concept, especially in the face of criticisms of Wikipedia, where anonmity and openness can lead to abuse.

The result? Knol is a huge disappointment. Witness the economics entries, which have been highjacked by lunatics. Despite appearances, incentives are wrong: There is no reward for correcting entries, or even maintaining them. All that matters is being the fisrt to start an entry. This leads to unnecessary duplication of entries, see for example those on Barack Obama (243) of which none comes even close to the quality of the Wikipedia entry.

Why is Wikipedia so much better even if contributions are anonymous? I think it encompasses all the benefits of the open source movement. People participate because they see an opportunity to contribute to the community. They want to share their passion without glorifying themselves. And they know that nobody is making money on their back. Imagine if Wikipedia started making portions of the site accessible only to subscribers. Contributors would leave en masse. Also, Wikipedia seems to have much better checks and balances in place, effectively subjecting entries to continuous peer review. Knol puts this in the hands of editors, who seem more interested in pusjing agendas than anything else.