Elasticity of Legal Downloads: How much will comsumers pay?

With Apple's legal downloading being so successful, Music labels have recently asked to increase the price per download. This worries Apple because it may cause a loss in customers. Apple also feels the price raise would be a bad move for the music labels because it could increase piracy. Apple also says that the market is not stable enough to increase prices quite yet. Many music labels also are worried about Apple becoming too powerful. They fear Apple might develop a dangerous monopoly since the music downloaded from iTunes can only be used for iPods. The music labels do not want to be used to sell iPods.

If only Apple and the music industry would think about calculating elasticity of the iTune downloads, they could solve their problem. They would know whether it is safe to raise prices or not. My guess is that the consumers are very price sensitive when it comes to these downloads. The fact the this product is probably very elastic has to do with the idea that consumers can illegally download music instead of buying. The greater the number of substitutes (illegal downloading), the greater the elasticity of the legal downloads. According to economics, if the demand for a product is elastic and price goes up total revenue will go down. Therefore, I feel that at this time, looking at the short-run effects of raising the price, Apple should not raise their prices like the music labels have asked.