These arise from two features of the conventional music market - that it is expensive and time-consuming to spot the next superstar; and that superstars (or their record labels) spend a fortune on promoting their albums.
In a world without piracy, these features mean that record companies under-invest in promoting new artists for fear of not getting their money back. The result is an under-supply of new bands - or at least an under-marketing of them - and excessively high payments to known quantities who aren’t especially great, as Marko Tervio has shown.
Piracy, however, changes this, argues Mr Alacala. If record companies fear that people will copy, say, U2’s new album, they will invest less in promoting it as such expenditure won’t be so profitable. At the margin this means that some people who would have bought the U2 album instead buy an one by a smaller band. And this increases the chances of that smaller band getting sufficient attention and acclaim to become superstars themselves.
The effect of this is that piracy increases the diversity of music in the short run, and increases the supply of superstars in the longer run. In this sense, piracy is efficient, as it corrects a market imperfection.
What’s striking about this result is that it comes even though Mr Alcala has biased his argument against it in two ways.
First, he’s not using the point that piracy is a form of promotion for lesser-known artists. File-sharing allows people to more easily introduce obscure bands to their friends.
Secondly, he’s assumed that best selling artists owe their success to being (marginally) more talented than others - that they are Rosen (pdf) superstars. In the real world, however, this is not the case; does anyone really think (say) Sting is more talented than Tom Russell? Instead, better-selling artists are in fact Adler superstars. They owe their success not to their talent but to their fame. Their sales could therefore fall quite sharply without the benefit of promotion spending and its correlates such as TV appearances. If so, then piracy - insofar as it does reduce such spending - does even more to increase market diversity.
This raises the possibility that opposition to file-sharing is strongest amongst those performers whose success depends upon their fame more than their ability.