Effects of Piracy on Demand and Supply of Music

Past and present of the music industry
The first signs of commercialization of the music and the music industry can be traced back in the 1700s, when composers and performers of classical music, such as W.A. Mozart, begun looking for ways to sell their music. The 1800s were mainly influenced by sheet music publishers.
The record music industry started in the 1900s, which allowed listening to the Ninth Symphony by Beethoven on a record of two sides, which was later substituted by an audio cassette and CD. This is also the time when all the greatest recorded music companies appeared: Sony, BMG, EMI, WEA, MCA and PolyGram. After merging of some of the companies, four music record giants – EMI, Warner, Sony Music Entertainment and Universal – started to dominate the whole music industry and reaped enormous profits for several decades.
The 21st century has changed the situation in the market of the music. Due to the development of digital music, the demand for recorded music has decreased and it has affected the whole music industry (“History of music”, 2008).
Market structure
The music industry consists of different players (Figure 1). Some of them operate in a market characterized by monopolistic competition, some create oligopoly. Independent of the previous situation all of them tend towards being monopolists because all of them are interested in maximizing their profits.
The output produced by musicians, both individual performers and music bands, is music. Apart from different audiences and music styles, musicians can choose also various ways for distribution: either sound and/or video records (private good) or live performances (ticket good). All artists do not compete with each other, as there are already established barriers among them, which greatly depend on their popularity. The most well known and also the richest people in the music industry, like the Police, Beyoncé, Toby Keith, Justin Timberlake and Madonna, can be seen as monopolists, which allows them to set ultra high prices for their music (Rose, 2008). …