I think that if albums were $5, 3 times the albums might be sold, but more dollars would not be spent. I don't see anything but punishment stopping illegal downloads.
Price vs demand relationships are complex and usually not liner.
Over a small range you can work out a price elasticity of demand. For something like bread it might be near zero (as price goes up, demand stays nearly constant) while for something like chocolate covered dwarf hookers it might approach infinity (as price goes up, demand drops to zero really fast).
With a PED of less than one, cutting prices will lower revenue. With a PED of greater than one cutting prices will increase revenue.
Music PED varies by band more than you might expect. For unknown bands it is huge, for established bands with large fan bases it is very, very low. If you are a U2 fanatic then there are no effective substitutes for your purchase so price is not relevant, whilst for X IN INTERESTING_INDY_BANDS there will be many other possibilities so you my as well pick the cheapest.
(Right now if you have a product with a negative PED you should be working hard on it. Anything (like VOIP, or rice, or medical care) where demand goes up as real price goes up (due to deflation/drop in income levels) is a good bet in a recession.)
Last para confusers price elasticity of demand with income elasticity of demand/ What you eventually say could be interpreted to mean something like Giffen goods, which I am sure is not what you meant.:
