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Their statistical analysis of file sharing activity in 2002 found that contrary to music industry claims, there is no evidence that sharers would have bought CDs containing the music that they had downloaded over p2p networks.

According to p2p research firm Big Champagne, there were an average of 10 million simultaneously active file sharers in 2006. By contrast, the researchers note that prior to 1999, when Napster, the first popular p2p network was established, file sharing activity was virtually non-existent. This huge increase corresponded to a 25 per cent fall in CD shipments in the US. The automatic conclusion is to blame the decline on sharing.

Not so, say Oberholzer-Gee and Strumpf.

'While concerns about P2P are widespread, the theoretical effect of file sharing on record sales and industry profits is ambiguous,' they found. 'Participants could substitute downloads for legal purchases, thus reducing sales. The inferior sound quality of downloads and the lack of features such as liner notes or cover art perhaps limit such substitution.'

Moreover, by exposing users to new music, sharing may actually have increased sales.

'File sharing allows users to learn about music they would not otherwise be exposed to,' they wrote. 'In the file-sharing community, it is common practice to browse the files of others and discuss music in file server chat rooms. This learning may promote new sales.'

The two researchers compared 1.75 million file transfers from the last third of 2002, a period of rapid growth in file sharing to a 'representative' set of albums for which they had concurrent weekly sales, matching the 260,889 songs that US file sharers successfully transferred during the period to the 10,271 songs on the 680 albums in their sample. They found no correlation between the particular songs that were downloaded and the sales of the albums that contained those songs.

'Downloads have an effect on sales that is statistically indistinguishable from zero,' they concluded. 'Our estimates are inconsistent with claims that file sharing is the primary reason for the decline in music sales during our study period.'

They note that the decline in CD sales followed 'a period of atypically high sales, when consumers replaced older music formats with CDs', suggesting that sales would have fallen regardless. Moreover the fall in sales

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is not uniform: sales have been flat or even rising in major markets with a quickly growing file-sharing population and different record companies have been affected to varying degrees.

'In the United States the entire drop in 2005 album sales is due to losses at a single firm, the recently merged Sony-BMG, which has experienced severe post-merger integration difficulties,' they note. 'If file sharing were responsible for the observed sales decline in the United States, we would not expect this activity to affect the products of only a single firm.'

Oberholzer-Gee and Strumpf suggest that one possible reason for the absence of a correlation between sharing and sales is that most file sharers would not have bought the music that they downloaded had they not been able to obtain it via p2p, and that file sharers and consumers who purchase music are in fact two separate groups. However they argue that this is inconsistent with 'every survey we are aware of', including music industry studies, which indicate that downloaders, even heavy ones, continue to purchase legal CDs.

In fact, the 2004 US Consumer Expenditure Survey found households without a computer, and therefore unlikely to engage in file sharing, said that they had reduced their spending on CDs by 43 per cent since 1999.

A more likely explanation for the decline in CD sales is competition from other sectors

'A shift in entertainment spending toward recorded movies alone can largely explain the reduction in sales,' they note. 'The sales of DVDs and VHS tapes increased by over $5 billion between 1999 and 2003. This figure more than offsets the $2.6 billion reduction in album sales since 1999.'

At the same time computer game sales rose by 40 per cent and mobile phone usage by teenagers tripled.

Oberholzer-Gee and Strumpf finish by arguing that file sharing will have little effect on the quality or quantity of new music.

'For artists who produce commercially relevant products, the effects documented in this study are simply too small to change the number or quality of recordings that they release,' they say. 'And for new bands that are about to launch their career, the probability of success is so low as to make the expected income from producing music virtually zero, so file sharing will not change the relevant incentives.'

And while file sharing may not be impoverishing the music industry, it is enriching the rest of us.

'The sheer magnitude of P2P activity, the billions of songs downloaded each year, suggests that the added social welfare from file sharing is likely to be high,' they conclude.

Oberholzer-Gee and Strumpf's findings were published in the February edition of the Journal of Political Economy and online at journals.uchicago.edu/JPE.