Everyone is downloading free songs because they refuse to lower CD prices. The other day I walked into an FYE Store and saw NORMAL CD prices at $18.99. This is robbery. Why would anyone pay for a CD which might have 1 good song?
That's a huge part of it. As long as it is cheaper and more convenient to pirate music instead of buying a copy for each and every piece of audio equipment you own, people will do the former.
Piracy is a de facto competitor to legitimate music retailers, whether the RIAA member companies like it or not. If people are still pirating songs even when they cost 99 cents a track, it means that these people do not believe the music is worth even that much, regardless of how much it cost to produce it.