Why the Music Industry May Gain from Free Downloading - the Role of Sampling

Abstract

Downloading digital products for free may harm creators and intermediaries because consumers may no longer buy the version for sale. However, as we show in this paper, this negative effect may be overcompensated by a positive effect due to sampling: consumers are willing to pay more because the match between product characteristics and buyers' tastes are improved. This indeed holds under sufficient taste heterogeneity and product diversity.