Copyright Royalty Regulation and Competition in the Music Retail Market
- Copyright Royalty Regulation and Competition in the Music Retail Market
- Yang, YongHyeon
- Issue Date
- Price control can restore efficiency in some cases, but an uncarefully
designed policy fails to restore efficiency, yields side effects, or even
exacerbates efficiency losses. This paper shows that the copyright
royalty rule, which takes the greater of ad valorem royalties and perunit
royalties, tends to fix the prices of final goods at a specific level.
Such a rule weakens competition as it prevents prices from decreasing
even when market conditions change, having negative effects on social
welfare as well as consumer surplus. Counterfactual analyses using
estimation results in the Korean online music service industry show
that firms could have profitably reduced prices if the ad valorem rule
had been applied instead, although they did not have an incentive to
do so under the original combination rule.
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