Peer-to-Peer File Sharing: The Case of the Music Recording Industry

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