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Introduction
The record industry has led listeners to believe that the recent rise in digital piracy has hurt music sales. Digital music piracy, or the unlawful downloading of copyrighted music, has been a controversial topic since 1 998 when Shawn Fanning created Napster. Though the MP3 file, short for MPEG-I Audio Layer-3, was originally developed in 1987, Napster represented the first mainstream and user-friendly program to transfer and download these files. Napster, a peer-to-peer (P2P) program, allowed online users to connect with one another and swap copyrighted music, videos, and other files contained on their computers, thus providing a way to get free music online.1 Since music artists and record companies were uncompensated when consumers downloaded these music files, the act of downloading "free music" became known as digital music piracy. Market statistics compiled by the International Federation of the Phonographic Industry (IFPI) show that worldwide sales of music fell at the turn of the century and P2P networks were immediately blamed for the industry's bad fortunes.
According to the IFPI, the Recording Industry Association of America (RIAA), and many other record industry representatives, illegal music downloads have had a negative impact on recent music sales.2 In an effort to prevent substantial losses, the recording industry took P2P software companies to court; threats of legal action were extended to individuals who downloaded music files illegally. This study is not designed to discuss the legal consequences of music piracy, nor question the legality of downloading music. Instead, it analyzes the impact that digital piracy might have on the music industry in terms of record sales.3
Digital music piracy is an example of end-user piracy, in which consumers can obtain music for their own personal enjoyment without physical transactions. End-user piracy can be more difficult to detect than commercial piracy since goods never physically exchange consumers' hands. The music industry is not alone in its difficulties with digital piracy; the movie and video game industries also claim that piracy has caused a substantial decrease in the sales of their products.4 These entertainment industries account for a small, but valuable, percentage of the U.S. Gross Domestic Product (GDP), and play a large role in fulfilling the entertainment needs of individuals. A high consumer value is assigned to...