The illegal P2P file sharing technologies, which have been introduced in the recorded music industry since 1999, have significantly affected the industry. Some of these technologies include Kazaa, Limewire, and Napster. These technologies enhanced the ability of the internet users to get access to the recorded files from the music industry without necessarily seeking the permission of the owners/producers (DeVoss and Porter, 2006, 178). Consumers had significant freedom to access the internet and download any music or video files of their wish. The spread of these technologies was mainly facilitated by various factors like the increased physical media digitalization and residential personal computers. P2P significantly affected the prices and quantity of recorded file sales. The structure of this essay is as follows. First, the ethical and economic issues that resulted from the introduction of P2P technologies are discussed. Second, economic theories and concepts are applied to analyze the effects of the problems identified. Finally, my position and appropriate evidence to support my claims are discussed.
Issues
The major economic problems on the recorded music industry caused by these technologies include.
Reduced income to the music entertainers and producers. Producers and entertainers usually benefit from the revenue collected from their produced music files. Entertainers do entertain people and collected royalties in exchange while producers do receive income from the produced songs (Hayes, 2018). Therefore, the introduction of illegal P2P file sharing significantly reduced the amount of revenue collected from the generated music files. The increased amount of cash had to be lost by the producers and entertainers as their customers were minimal.
Reduction in the recorded music sales. Since most of the consumers had an opportunity to access the internet and download music and video files of their preference, the amount of record sales had to go down. These technologies significantly reduced that amount of sales that were being made by the music industry, as there were only a few customers to buy the produced music files (DeVoss and Porter, 2006, 180). Various economic studies revealed that since the introduction of these technologies, the number of record sales has substantially gone down. For instance, a particular survey in the US showed that about $ 6 billion was able to be lost by the industry immediately the technologies were introduced.
Closure of the record stores. Since most of the consumers could freely get access to the produced music via their electronic devices (that is computers and phones), the music industry made massive losses as their recorded music sales were able to decline (Oberholzer-Gee, 2007, 30). If it is true that consumers can freely download the produced music files and burn them into their own mp3 players and CDs, then there is no need of purchasing them directly from the music industry. This, in turn, contributes to the closure of most of these stores, as there were no customers to buy their music products. For instance, more than 1200 stores have been closed in the US since the introduction of these technologies in the nation.
The main ethical issues related to the introduction of these technologies are mainly based on the assumption that it is illegal for one to use other person’s property without permission. Since most of the music materials that are shared using these technologies are copyrighted, it is considered piracy and violation or producers’ IP (intellectual property) rights to use their properties illegally. Ethical standards prescribe that people should behave in a manner that does not go against the law. Thus, they are required to purchase the recorded music legally instead of downloading them illegally.
Analysis.
The theories of consumer surplus and producer surplus can be applied to analyze the above ethical and economic issues in the following ways. First, since the introduction of the Napster and other P2P file-sharing technologies, the demand for the produced music products was able to go down (Shang, Chen, and Chen, 2008, 356). Meaning the amount of supplies made by the producers were high compared to the consumers’ demand. This, in turn, led to the decline in prices for the music products. Therefore, producers were able to sell the products at unexpected prices. Hence, making them experience producer deficit.
This concept explains why most of the record stores collapsed due to the increased amount of losses. Reduced prices also contributed to the reduction in the recorded music sales because most of the suppliers were greatly demotivated by these low prices (Chen, 2008, 413). Consumers, on the other hand, experienced consumer surplus as they could buy the music products at lower prices than their expectation
The figure below illustrates the theory of producer surplus and consumer surplus.
Source: Introduction to Microeconomics. (2003)
Using demand and supply curves, we can conclude that the reduced demand led to excess supplies compared to demand which in turn contributed to the decline in the music prices. These reduced prices resulted in increased losses made by the music industry. Hence leading to the closure of some significant record stores in this industry.
Position
My stand on the Napster and other P2P file-sharing technologies is that they should be stopped. The music industry should come up with a plan and measures to enable it to oversee and regulate people who get access to their recorded files to reduce the issue of piracy and violation of the intellectual property rights. As mentioned above in the economic and ethical issues that came up after the introduction of these technologies, the prices for music products dropped due to the excess supply over demand (Alexander, 2002, 156). The industry made increased losses thus leading to the closure of some of the record stores. Therefore, copyright laws should be enhanced to help in maintaining the equilibrium prices (Bonacina, 2016).
Critique
The introduction of the P2P file sharing had two significant main effects on the music industry. These include reduced prices and demand for the record sales thus making the music industry to make increased losses which in turn discourages investors who may have interest in investing in this industry. Music producers are also discouraged thus exposing the industry to significant risks of making losses due to reduced demand (Alexander, 2002, 157). The industry may even end up closing thus rendering many people jobless who may later involve themselves in criminal activities that may harm the society. Therefore, appropriate copyright laws should be enhanced to help in protecting the industry from diminishing.
References
Alexander, P.J., 2002. Peer-to-peer file sharing: The case of the music recording industry. Review of Industrial Organization, 20(2), pp.151-161.
Bonacina, E. (2016). No need to pay? The impact of piracy on the music industry. (Online). Available at: http://www.draytontribune.com/no-need-to-pay-the-impact-of-piracy-on-the-music-industry/
Chen, Y.C., Shang, R.A. and Lin, A.K., 2008. The intention to download music files in a P2P environment: Consumption value, fashion, and ethical decision perspectives. Electronic Commerce Research and Applications, 7(4), pp.411-422.
DeVoss, D.N. and Porter, J.E., 2006. Why Napster matters to writing: Filesharing as a new ethic of digital delivery. Computers and Composition, 23(2), pp.178-210.
Hayes, A. (2018). Economics Basics: Supply and Demand. (Online). Available at: https://www.investopedia.com/university/economics/economics3.asp.
Introduction to Microeconomics. (2003) (Online). Available at: http://www.econweb.com/MacroWelcome/sandd/notes.html.
Oberholzer-Gee, F. and Strumpf, K., 2007. The effect of file sharing on record sales: An empirical analysis. Journal of political economy, 115(1), pp.1-42.
Shang, R.A., Chen, Y.C. and Chen, P.C., 2008. Ethical decisions about sharing music files in the P2P environment. Journal of Business Ethics, 80(2), pp.349-365.
