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Copyright Royalty Regulation and Competition in the Music Retail Market

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  • Yang, Yong Hyeon

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.

Suggested Citation

  • Yang, Yong Hyeon, 2017. "Copyright Royalty Regulation and Competition in the Music Retail Market," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 39(1), pages 83-102.
    • Handle: RePEc:zbw:kdijep:200804
    DOI: 10.23895/kdijep.2017.39.1.83
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    References listed on IDEAS

    as
    1. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
    2. Cho, Sung Ick, 2015. "Study on the Economic Effect of Enhanced Fixed Book Pricing Scheme," KDI Policy Studies 2015-08(K), Korea Development Institute (KDI).
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    More about this item

    Keywords

    Price Control; Copyright Royalty; Royalty Regulation; Ad valorem Rule; Per-unit Rule; Combination Rule; Online Music Service Industry;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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