I don’t have much to say about Grokster because I’m of many minds about it. Turns out I’m not alone; Tyler says economists should feel conflicted about peer-to-peer file sharing.
One aspect of Tyler’s argument is what I call the “relevant and irrelevant externality” argument. Will file sharing reduce economic efficiency, leading to less-than-optimal amounts of music being produced? Depends on whether the externality created by the file sharing is relevant at the margin, and that’s where a lot of the discussion has been taking place. I am also glad that he points out that a shrinking music industry is likely to be consistent with increased efficiency, due to the effects of technological change and disintermediation.
One area where I’m not sure I agree with Tyler is the extent to which consumers are oriented toward new music and not toward older music. I have two caveats, one systemic and one short-run. I think there is always likely to be some subset of the population that goes back and “rediscovers” the music of earlier years, which is likely to create some demand for the backward “long tail” of older music. And in the short run, the transition from vinyl to CD to digital will keep the demand up for older music for consumers like me, who had lots of stuff on vinyl and never bought it on CD, but are now buying it digitally. I did this recently with Jesus & Mary Chain, Love & Rockets, and an early Love Tractor album.
This Information Week article mentions using micropayment-based peer-to-peer file sharing as an alternative market institution. The fertile innovation and plummeting costs of new technolgies continue to reduce the transaction costs in such a system, so it becomes more feasible all the time. So ways to innovate Grokster to be legal during this transition to a more disintermediated industry are feasible.
Speaking of disintermediation … it’s been a while since I’ve put in a plug for Magnatune, an online record company with a great portfolio of artists, good royalties to artists, and good prices to consumers.