Peer-to-peer file sharing: The case of the music recording industry

The music recording industry is a highly-concentrated five firm oligopoly. Much of the dominance achieved by larger firms in the industry results from control over the distribution and promotion of the products of the industry. Alexander (1994b), predicted that new compression routines would facilitate the efficient transfer of digital music across the internet. MP3 compression routines have made such transfers relatively simple and efficient. While smaller new entrants have not yet been able to exploit this new technology in terms of market share, an element of uncertainty exists regarding the sustainability of the prevailing structure, due to large scale non-sanctioned file sharing. Despite the industry's legal efforts to suppress non-sanctioned file distribution, peer-to-peer networks may render these efforts futile. However, peer-to-peer networks must overcome structural and institutional problems, in particular, free-riding.