The impact of internet file-sharing on the purchase of music CDs in Canada.

This paper re-examines data from a survey commissioned by Industry Canada on the effects of internet peer-to-peer (P2P) file sharing activities on music purchasing behaviour. The survey was designed to 'inform Industry Canada's policy development work' (Quote from project Description from Industry Canada's website at downloaded 23 January 2012) and the need for copyright law reform in Canada in light of the technological innovation posed by P2P file sharing. The Journal of Evolutionary Economics published a study of the Industry Canada data by Andersen and Frenz (AF) in 2010 which claimed to show '... no association between the number of P2P files downloaded and CD album sales (Andersen and Frenz 2010 ibid p 374),' and '... that P2P file-sharing is not to blame for the decline in CD markets. Music markets are not simply undermined by free music downloading and P2P file-sharing (Ibid p375).' Our paper corrects a number of fundamental errors in this analysis of AF, in particular the fact AF biased their results by excluding from their analysis the group of consumers who had completely stopped purchasing CDs (potentially because of P2P activity) prior to 2005. This is the very group who were most responsive, or likely to have substituted P2P downloading for CD purchases. We use longitudinal analysis of how reported changes in P2P downloading by individuals related to their reported changes in CD demand between 2004 and 2005 to better test the hypothesis of whether P2P downloading may reduce CD demand. Contrary to AF's results we find negative and generally statistically significant partial correlations between CD purchases and P2P downloads under a number of specifications and sample definitions. The range of these estimated correlations is between −0.047 and −0.061. This implies that a 10 % growth in P2P downloads is associated with between a 0.47 and 0.61 % decline in CD purchases. Our estimated relationships between CD sales and P2P downloads are broadly consistent with market sales data up to the time of the Industry Canada survey, unlike AF. [ABSTRACT FROM AUTHOR]