On File Sharing With Indirect Network Effects Between Concert Ticket Sales and Music Recordings

Abstract

This article analyzes the interdependency between the market for music recordings on the one side and the market for concert tickets on the other side, assuming that there are positive indirect network effects both from the record market to ticket sales for live performances and vice versa. In a model with two interrelated Hotelling lines, prices in both markets are corrected downward when compared to the standard Hotelling model. In the integrated business model, file sharing has an ambiguous effect on firms' profitability. As file sharing can indirectly increase demand for live performances, overall profits can either increase or decrease, depending on the strength of indirect network effects. Finally, file sharing may induce firms to switch from the traditional business model with two separate firms to an integrated business model where one agency markets both records and concerts (so-called 360° deals).