Piracy's real effect on music sales is difficult to accurately assess. In classical economics prices are determined by the combination of the forces of supply and demand, but the participators in the digital market do not always follow the usual motives and behaviors of the supply and demand system. First, the cost of digital distribution has decreased significantly from the costs of distribution by former methods. Furthermore, the majority of the filesharing community will distribute copies of music for a zero price in monetary terms, and there are some consumers who are willing to pay a certain price for legitimate copies even when they could just as easily obtain pirated copies, such as with pay what you want vendors.
Another issue is that because some people, like many in China, illegally download music because they cannot afford to purchase legitimate copies, not every illegal download necessarily equates to a lost sale. This has some effect on music sales, but as Lawrence Lessig points out, there is wide asymmetry between the estimated volume of illegal downloading and the projected loss of sales:
“In 2002, the RIAA reported that CD sales had fallen by 8.9 percent, from 882 million to 803 million units; revenues fell 6.7 percent. This confirms a trend over the past few years. The RIAA blames Internet piracy for the trend, though there are many other causes that could account for this drop. SoundScan, for example, reports a more than 20 percent drop in the number of CDs released since 1999. That no doubt accounts for some of the decrease in sales... But let’s assume the RIAA is right, and all of the decline in CD sales is because of Internet sharing. Here’s the rub: In the same period that the RIAA estimates that 803 million CDs were sold, the RIAA estimates that 2.1 billion CDs were downloaded for free. Thus, although 2.6 times the total number of CDs sold were downloaded for free, sales revenue fell by just 6.7 percent... So there is a huge difference between downloading a song and stealing a CD."
