I especially thank Jerry Miller, professor of my Principles of Microeconomics honors seminar as well as Assistant Chair of the Department of Economics at Miami (Ohio) University, for his guidance and support. I also thank the authors of the FAQ for alt.music.bootlegs, and the author of The Bootleg Manifesto for their concise descriptions of bootlegs and for pointing out the differences between bootlegs and pirated copies. I give thanks to Curt Page and Layla Archer for creating and maintaining Opinion Magazine for Nirvana fans such as myself. Finally, I thank Allan Kozinn for his editorial in the New York Times, which stated the qualities of bootleggers. It was helpful to have a reputable source back up my statements.

To further in assist the cause of bootleggers and to educate the public about bootlegging, permission is granted to anyone wishing to duplicate and use the content of The Economics of Bootlegging for informational purposes. All duplication and use must be entirely not-for-profit, and it must acknowledge the author, Greg M. Daugherty, his sources, and the origin of the material.

Bootlegging, the unauthorized and illegal recording of live and rare music performances, has been practiced as long as people have had the instruments to record music. Bootlegging can be traced back to the 1920s, and all kinds of music, from classic and modern rock to symphony and opera, have been bootlegged(Kozinn B2).

The Framers of the Constitution outlawed bootlegging over 200 years ago even though bootlegging didn’t exist. They gave Congress the power "To promote the progress of useful arts, by securing to authors the exclusive rights to their respected writings." in article I, section 8, clause h. Because bootlegging is a violation of copyright law, state law enforcement agents and the major record companies in the music industry have tried to eliminate bootleggers.

Nonetheless, bootlegging will continue, and looking at bootlegging from an economic point of view may raise questions about policy regarding bootlegging.

Because bootleggers profit on the performances of other people, they are often categorized with liars, cheaters, and criminals. Similarly, bootleggers decide how great the cost of risk is, and they must convince themselves along with consumers that they are not harming the band. Several groups of people consider costs and benefits in the bootlegging market, and these costs range from developing skills, to moral costs, to time and money spent prosecuting bootleggers.

These costs are similar to those facing liars, cheaters, and criminals, and a comparison of costs and benefits will show that bootleggers are rational in their actions.

The definition of a bootleg. Many people, including law enforcement officials, confuse a bootleg with other kinds of unauthorized recordings, especially pirated copies. A pirated recording is a compilation of songs from an authorized release.

If this is an exact copy of an authorized release, this is called a counterfeit copy. Both of these are less expensive and have inferior quality than an authorized release. These are flagrant copyright violations because they are direct rip-offs of a record label release. In contrast, a bootleg is a recording of a live performance, unreleased songs, alternative versions of songs, b-sides, or demos. In short, they are recordings of rare performances because they were never released (The Bootleg Manifesto).

Cost/Benefit Analyses. One of the main arguments against bootlegging is that this practice is harmful to the performer or band. Because bootlegged material is owned by the band, the band loses royalties from each bootleg sale that it is entitled to under copyright laws. A band also loses the creativity to decide what to release and what not to release to the public.

Bootleggers make available performances or material that a band doesn’t want released. Despite these costs, bootlegs make the fans of a performer happy, and they increase a performer’s reputation. Furthermore, bootlegs allow performers to check out material and processes of other artists. Paul McCartney once said, "I have no problems with bootlegs, although every time I say that, my lawyer says, ‘Oh yes you do.’" (Kozinn B2).

It is not the bands but the record companies who argue the most against bootlegs. Record companies argue that they are losing money from royalties on their clients’ material. Record companies also spend much time and money to catch bootleggers and have them prosecuted. What record companies fail to realize is that they never recorded or released these performances, and they had no production and promotion costs. Record companies also claim that when people buy bootlegs, they avoid buying authorized releases. This claim is false, however, because people buy bootlegs in addition to authorized releases, not as substitutes to them (Kuhn FAQ for alt.music.bootlegs). These arguments would apply to pirated recordings, but not to bootlegs. What the record companies are really saying is that they are losing the potential sales revenue from recordings they could have authorized but chose not to.

Indeed, it may be that bootlegs are not as costly to record companies as the executives say they are, and it is a fact that bootlegs have offered benefits to the record companies. Record companies have increased revenues by appreciating the full market of band through "unofficial bootlegs." Several bands and record companies have decided to release live cds or cds with rare recordings. Consumers love these because they offer the same material that is on a bootleg at a much cheaper price. This is because bootlegs are often one third more expensive than authorized cds. When Bob Dylan realized how heavily bootlegged some of his material was, he released two albums, "The Basement Tapes" and "Bootleg Series Vol. 1." Paul McCartney realized that his performance on MTV Unplugged was destined to be heavily bootlegged, and he authorized the release of the performance in the album "Unplugged, the Unofficial Bootleg." Also, because bootlegs improve the reputation of the band, consumers are more willing to buy new authorized releases from that band (Kozinn B2).

In addition to record companies and bands being affected by the bootleg market, retailers also have an interest in bootlegs. Retailers who do not sell bootlegs have said that bootleg sales detract from the sales of their authorized albums, but their situation is similar to that of the record companies. Some retailers, particularly the small, independent music stores, illegally sell bootlegs and incur the cost of risk. Law enforcement officials have raided several stores, and retailers could lose their business, face fines, or be imprisoned. The retailers who do sell bootlegs feel that the revenue from bootlegs is enough to cover these costs.

One of the two largest players in the bootleg market is the consumer. The consumer is unconcerned with whom receives his money, but most people who buy bootlegs say they would buy live and rare cds from authorized sources if available (Kozinn B2). Consequently, the consumer relies heavily on cost/benefit analyses when deciding on purchasing a bootleg. Because the bootlegs are one third of the price more expensive than authorized cds, the consumer has to decide if the material on the bootleg is worth the extra cost.

Also, because amateurs often record bootlegs, consumers may sacrifice sound quality as well as money. It is important to note that many concerts are broadcast over radio stations, and these have excellent sound quality. Also, some bootleggers actually do a professional recording job. The benefit that the consumer receives is the music that he could not find anywhere else. If the benefit of the rare music is large enough, the consumer will spend the extra money on a bootleg.

The other major player in the bootleg market is the bootlegger. He has the cost of his tools: recording equipment, concert tickets (another benefit to the band), and whatever amount of time and money is necessary to obtain other rare performances. Risk is another cost because the bootlegger faces a penalty of fines and imprisonment if he is caught. People who sell bootlegs do so because they can sell bootlegs at a much higher price than blank tapes or cds and because they receive satisfaction when they share music.

Finally, society as a whole, including those who do not buy bootlegs, are affected by the bootleg market. Taxpayer dollars are spent on law enforcement officers who arrest bootleggers. If any bootlegs are confiscated, society from a cultural standpoint loses rare music. On the other side of the coin, society gains rare music that has been preserved by bootleggers, and society may chart the historical style of an artist through his performances.

Despite the efforts to prosecute bootleggers, several exogenous factors will always affect the bootleg market. Technology is one such factor. Bootleggers were eager to record their bootlegs on blank cds when they became available because of the improved sound quality from tapes. This made the supply of bootlegs increase while the price slightly decreased. Also, the internet encouraged bootleggers to increase their supply because they could list their bootlegs and prices as well as offer a few songs to download on their world wide web pages. People could easily search the internet for bootlegs rather than look for small music stores who sold bootlegs. The overall risk of selling bootlegs still makes bootlegs relatively scarce, and thus the price will never decrease by a significantly large amount.

Another factor is the release of a live or "unofficial bootleg" cd. Because consumers know these definitely have good sound quality and because they are less expensive than bootlegs, the demand for bootlegs will fall. In essence, a live cd is a substitute for a bootleg, and the price and quantity of bootlegs will fall. Similarly, the release of any new authorized album affects the bootleg market. If people enjoy listening to the new album, then the demand for bootlegs from the upcoming concert will increase along with the price and quantity of bootlegs. If fans are not happy with the new album, then the opposite effect will occur.

Because new albums influence the bootleg market so much, the "death" of a band can affect bootleg sales. One scenario is the actual death of a band member. For example, after Kurt Cobain’s suicide in 1994, Nirvana bootlegs became more rare because fans understood that no more new bootlegs would come out. This increased the demand, and consequently the price and quantity of bootlegs increased. If a band simply breaks up or retires, this will have the same affect as the death of the band member. This was illustrated when the Beatles broke up in 1970.

The "death" of a band can also have a negative effect on bootleg sales. If a band has a public relations or legal disgrace (e.g. Milli Vanilli getting caught lip syncing to their lyrics), the demand for bootlegs will decrease, and thus the quantity and price of bootlegs will fall.

The last exogenous factor is law enforcement concerning bootlegs. Whenever law enforcement officials catch a bootlegger and confiscate the bootlegs, the supply of bootlegs decreases. This also happens whenever a record company catches people advertising bootlegs on the internet. The record company tells the web site author to quit selling bootlegs and shut his page down or face prosecution. This decreases the supply of bootlegs, and consequently the quantity of bootlegs sold decreases while the price of bootlegs increases. On the other hand, if a band allowed bootlegging to be legal, the removal of risk as a cost would increase the number of bootleggers and the number of bootlegs. The supply of bootlegs would increase and the price of the bootlegs would fall. This is exactly what happened when the band The Grateful Dead made it legal to bootleg their concerts.

When deciding on what the law should be regarding bootlegging, it must be remembered why copyright laws were established. The Constitution called for copyright laws to protect musicians and promote the arts. The bands are entitled to royalties from their performances and have the right to decide which performances to release to the public. However, it may be argued that bootlegs do promote the arts because they "preserve our musical heritage" (Kozinn B2). The cultural value is a benefit to society, and several benefits to the musicians and record companies have been noted. However, musicians allow the record companies to represent their interests, and this is why record company executives argue against bootlegs.

Legislators must decide which is larger between the costs and benefits to society and the musicians. Once this is done, the costs and benefits of enforcing the law must be considered. Bootlegging is currently legal in Germany and Luxembourg, and obvious loopholes make bootlegging legal in Italy, although Italy reconsidering its policy (Kuhn, FAQ for alt.music.bootlegs).

The government and record companies cannot control the several exogenous factors that will affect the bootleg market.

Record companies have yet to prove they’ve lost income due to bootlegs, and band members often ignore the issue. Perhaps the greatest net benefits for all involved would be maximized if the United States also legalized bootlegging. Until the current policy is reconsidered, bootlegging will continue; record company executives will persecute the bootleggers, and fans will treat themselves to rare music.