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Welfare Effects of Endogenous Copyright Enforcement - the Case of Digital Goods

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  • Markus Pasche

    ()
    (School of Economics and Business Administration, Friedrich-Schiller-University Jena)

Abstract

In case of digital goods such like music, intellectual property rights are typically not exerted by the creators (artists) but by intermediaries. Their profits, and therefore also the income of the artists, are endangered by copyright infringements (piracy). It is well known from static welfare analysis that to some extent piracy reduces the deadweight loss by limiting monopoly power and could therefore increase welfare. This paper contributes to the discussion by including the costs of law enforcement into the welfare analysis. Most models in the literature assume that law is enforced by governmental activities. In contrast, this paper considers that law enforcement is exerted by agents (e.g. lawyer chancellories, provider of screening technologies) which are also seen as intermediaries. The enforcement effort is therefore endogenously determined. It is shown that this will lead to suboptimal welfare outcomes. A social planner has to regulate punishment and enforcement effort to a moderate level. A more rigorous fight against piracy could only be justified by negative dynamic welfare effects due to a loss of creativity. However, there is no empirical evidence for that.

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Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2014-008.

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Date of creation: 31 Mar 2014
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Handle: RePEc:jrp:jrpwrp:2014-008

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Keywords: digital goods; music; piracy; copyright; intermediation; law en- forcement; welfare;

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References

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  1. Brett Danaher & Michael D. Smith & Rahul Telang, 2014. "Piracy and Copyright Enforcement Mechanisms," Innovation Policy and the Economy, University of Chicago Press, vol. 14(1), pages 25 - 61.
  2. Felix Oberholzer-Gee & Koleman Strumpf, 2007. "The Effect of File Sharing on Record Sales: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 115, pages 1-42.
  3. Landes, William M & Posner, Richard A, 1989. "An Economic Analysis of Copyright Law," The Journal of Legal Studies, University of Chicago Press, vol. 18(2), pages 325-63, June.
  4. Luis Aguiar & Bertin Martens, 2013. "Digital music consumption on the internet," JRC-IPTS Working Papers on Digital Economy 2013-04, Institute of Prospective Technological Studies, Joint Research Centre.
  5. Tobias Regner & Javier A. Barria, 2007. "Do Consumers Pay Voluntarily? The Case of Online Music," Jena Economic Research Papers 2007-011, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  6. Towse, Ruth, 2001. "Partly for the Money: Rewards and Incentives to Artists," Kyklos, Wiley Blackwell, vol. 54(2-3), pages 473-90.
  7. Peukert, Christian & Claussen, Jörg & Kretschmer, Tobias, 2013. "Piracy and Movie Revenues: Evidence from Megaupload. A Tale of the Long Tail?," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79697, Verein für Socialpolitik / German Economic Association.
  8. Patrick Cohendet & David Grandadam & Laurent Simon, 2009. "Economics and the ecology of creativity: evidence from the popular music industry," International Review of Applied Economics, Taylor & Francis Journals, vol. 23(6), pages 709-722.
  9. Rob, Rafael & Waldfogel, Joel, 2006. "Piracy on the High C's: Music Downloading, Sales Displacement, and Social Welfare in a Sample of College Students," Journal of Law and Economics, University of Chicago Press, vol. 49(1), pages 29-62, April.
  10. Boldrin,Michele & Levine,David K., 2008. "Against Intellectual Monopoly," Cambridge Books, Cambridge University Press, number 9780521879286, April.
  11. Katharina Eckartz & Oliver Kirchkamp & Daniel Schunk, 2012. "How do Incentives affect Creativity?," Jena Economic Research Papers 2012-068, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  12. Joel Waldfogel, 2011. "Bye, Bye, Miss American Pie? The Supply of New Recorded Music Since Napster," NBER Working Papers 16882, National Bureau of Economic Research, Inc.
  13. Zentner, Alejandro, 2006. "Measuring the Effect of File Sharing on Music Purchases," Journal of Law and Economics, University of Chicago Press, vol. 49(1), pages 63-90, April.
  14. Peitz, Martin & Waelbroeck, Patrick, 2006. "Why the music industry may gain from free downloading -- The role of sampling," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 907-913, September.
  15. Stan J. Liebowitz & Richard Watt, 2006. "How To Best Ensure Remuneration For Creators In The Market For Music? Copyright And Its Alternatives," Journal of Economic Surveys, Wiley Blackwell, vol. 20(4), pages 513-545, 09.
  16. Waldfogel, Joel, 2010. "Music file sharing and sales displacement in the iTunes era," Information Economics and Policy, Elsevier, vol. 22(4), pages 306-314, December.
  17. Ruth Towse, 2006. "Copyright And Artists: A View From Cultural Economics," Journal of Economic Surveys, Wiley Blackwell, vol. 20(4), pages 567-585, 09.
  18. Peitz, Martin & Waelbroeck, Patrick, 2006. "Piracy of digital products: A critical review of the theoretical literature," Information Economics and Policy, Elsevier, vol. 18(4), pages 449-476, November.
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