All complaints
about grades assigned to your essay must be submitted to Professor
Shapiro. If you think that your grade
is incorrect submit a written request to Professor Shapiro explaining why,
given the criteria below, you deserve a higher mark
Comments on the Essay and Criteria Used to Grade It.
.
General Comments:
1.
The
16 possible points are equally divided into two scores. The top score is for
economic content and the bottom score is for style and grammar.
2.
Many
of you wrote excessively on the arguments of the recording industry and the
consumers. The point of the paper was
to analyze the issues economically. A brief
summary of the legal issues is okay.
3.
Many
of you attempted to justify piracy by claims such as:
·
“CD
prices are inflated”: The price of diamonds is high. Should we then be allowed to steal diamonds?
·
“Music
is art and should be free”: I can assure you that artists work at producing quality music.
Perhaps we can decide that you shouldn’t get compensated for your work.
·
“CD
sharing is supported by many artists and is beneficial to many new
artists”: Those artists who benefit
from and support file sharing can give their music away for free without
requiring all artists to give away their music. If a group could benefit by having no private property, would
that justify someone taking away your
private property to split among that group?
Economic Content:
Explanation of the process: Most everyone earned full
points here. One common mistake (though
no points were taken off for it) was to call the original Napster a
peer-to-peer network. This is not the
case. Napster collected music on a
central server were it was then distributed to Napster’s customers. This is illegal and resulted in the
shut-down of Napster. On peer-to-peer
networks, files are not centralized, but are made accessible on the users’
personal computers. So, the provider of
the file transfer software is no longer breaking the law. It is now the users who break the law by
distributing copyrighted material from their personal computers.
Effect on demand for CD’s: The main argument should be
as follows:
The
ability to download and burn CD’s is a substitute for original CD’s. The introduction of a substitute would be
expected to decrease the demand for original CD’s and make the demand more
elastic. As the price for the
substitute decreases, we would expect further decreases in the demand for
original CD’s and additional increases in the price elasticity of demand for
original CD’s.
Notes:
1.
If
you wanted to argue that the demand for CD’s would actually increase, you must
first give the argument above and then argue why other factors may cause an
increase in demand greater than the expected decrease in demand due to the
introduction of a substitute.
2.
I
was expecting the use of proper economics terminology. If you did not use the term substitute, you
lost half a point.
3.
The
ability to download and burn CD’s is NOT
a perfect substitute for original CD’s.
A burnt CD does not have the same quality as an original, does not have
the cover, and is illegal. If the
ability to download and burn CD’s was a perfect substitute for original CD’s,
then we would expect the demand for original CD’s to vanish.
Effect on the equilibrium
price:
A
decrease in demand will cause a decrease in the equilibrium price.
Notes:
1.
Many
of you tried to argue that the companies would increase prices to try to
compensate for decreased revenue. This
reasoning does not take into account any idea of equilibrium. An increase in price will only create a
greater excess supply.
2.
In
the short-run, the supply is unaffected.
The supply curve should not shift.
Compensation of recording
artists:
The
monetary compensation of recording artists is proportional to the number of
albums sold. So a decrease in the
quantity of CD’s sold will result in a decrease in artist’s compensation.
Note:
1.
You
may also argue that the increased exposure that comes from access to music
online will increase demand for concert tickets and merchandise. The increased revenue generated in sales of
concert tickets and merchandise, and the consequent increase in compensation to
artists, may outweigh the decrease in compensation due to the decrease in CD
sales.
Return on Capital:
The
return on capital will decrease for the same reasons that the compensation of
artists (i.e. the return on the artist’s work) will decrease. The amount of revenue generated by capital
will decrease resulting in a decrease on the return on capital. A decrease in the return on capital will
result in less investment in recording as money is diverted to sectors with
higher rates of return.
Note:
1.
The
argument for the effects on marketing is similar.
2.
The
amount invested on capital depends primarily on the rate of return, not on the
money the recording companies have to spend.
If the rate of return was high, but the recording companies did not have
much to spend on capital, then investors would come in to take up the slack.
Recruitment of new artists:
Recording companies invest in new artists if they expect the profits generated by the artist to be positive. If the potential revenue of recording artists were decreased, then there would be fewer artists with a potential to generate positive profits. So the recording companies would sign fewer artists.
Choice of individuals to
pursue a music career:
There are two possibilities:
1. If you argued above that the compensation to artists will decrease, then we would expect a decrease in the number of individuals desiring to pursue a music career (i.e. the supply of music labor will decrease)
2. If you argued above that the compensation to artists will increase, then we would expect an increase in the number of individuals desiring to pursue a music career (i.e. the supply of music labor will increase)
Style and Grammar:
Grammatical mistakes were corrected or underlined on your paper. If you did not use the proper format for the paper, points were deducted. Style issues included readability and the presence of a clear thesis and/or conclusion.