This paper analyses the innovation process of music goods from an organisational point of view and the effects of digital technology on the allocation of property rights. We apply the property rights theory framework introduced by Grossman-Hart-Moore (GHM) to the music industry and study the contractual relationship between artists who create music and labels who promote and distribute it. In the spirit of GHM, different types of ownership structures are analysed. The result confirms the current allocation of property rights as it suggests that music labels, whose role in the production process is indispensable due to their promotion and distribution knowledge, should own the copyright. However as digital technology advances further, alternative ways to promote and distribute music develop - labels become less indispensable. We find scenarios where the incumbent ownership structure ceases to be optimal. Moreover, we discuss new organisational structures of the music industry. We introduce a mentor, an alternative intermediary to the label and analyse its effect on the optimal allocation of ownership. Our main result is that label ownership becomes less likely.
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Find related papers by JEL classification: C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
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