Contents

Copyright Royalty Regulation and Competition in the Music Retail Market

Yang, YongHyeon

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Abstract

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.

Issue Date
2017-02
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