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.

The demand for theater

What determines demand for theater? Theater managers should be interested in understanding their market. Beyond this, this is also important for policy as theater is frequently and substantially subsidized. This the characteristics of those who go to theater and how frequently they do so may help understand whether it is worth subsidizing it. For example, if only rich people go to theater, one could leave the state out and let the public pay higher prices, which substitute for taxes (and would then improve efficiency). If it is mostly poor people who attend theater, then it may be worth subsidizing if there is some sort of positive externality from it.

Concetta Castiglione uses micro data from Italy to find results that are not very surprising: everything is driven by education and income. Rich educated people pay more taxes and get them back in part in theater performances. This is even more pronounced than for higher education, for which forceful arguments have been made that the state should stop subsidizing it.

Of course, all this ignores consideration about the supply. but that does not matter here. Demand should be essentially the same whether theaters are subsidized or not in Italy.

The smart children of vengeance

As someone who has been raised in a non-violent environment, I am often surprised how people in some circles easily resort to vengeance and violence while a conciliatory attitude could have resolved "issues" quickly and efficiently. There is certainly a good deal of learned behavior that determines whether you are of a conflicting or conciliatory type, and this learning comes from example, in the family, among peers and in society. Society is important (say, compare Scandinavia to the Balkans) but there are also striking differences within societies. That is where parents may come in.

Ruby Henry studies how the use of retaliation is transmitted to children, first using a model of education effort by parents, and then using UK National Childhood Development Survey. The theoretical prediction is confirmed that high-cognitive parents are better able to transmit their values and override the peer culture, as long as the parents are retaliators. Indeed, if a child is told to retaliate and meet a forgiver, he wins and his values are reinforced. If he is a forgiver and meets a retaliator, he looses and is upset by the teachings of his parents. It the long run, this means that humankind will settle on a retaliating culture. But I do not think this is what we observe. In fact, there are less wars, people abide more to contracts and, I think, respect more the rule of law over time. Correct me if I am wrong.

Revenue sharing in rock bands

Rock bands are often volatile associations. While there may often be conflicts about the creative orientation of the band, conflicts are too often about jealousies regarding free riders or members who attract too much attention. Fundamentally, these are issues about contracting who does what and who gets what. In particular, when a band member is doing more creative work, should he also be getting a larger share of income (to reward creativity) or the same as the others (to avoid some jealousies)?

This is the question that Cédric Ceulemans, Victor Ginsburgh and Patrick Legros ask. The trade-off is clear: you want to attract more creative band members for its success, and you want to give them credit for this by giving them a larger share of the pie. So you may want to associate one creative musician with less creative ones (in a complete contract) or only creative ones (in a incomplete, uniformly sharing contract) depending on what it means for the probability of achieving a hit, and the type of contract will determine who wants to form a band and whether the band will outsource song writing (and how much effort each member puts into it). The theoretical analysis shows that under a complete contract, the more disperse the credits are, the more successful the band is (reflecting very much the winner-takes-all features of show business?). The relationship is negative for incomplete contracts, which is apparently true in the data. This means that bands are driven to write incomplete contracts.