Digitization, Copyright, and the Welfare Effects of Music Trade

Authors: Luis Aguiar (Institute for Prospective Technological Studies) and Joel Waldfogel (University of Minnesota)

Music trade has shifted rapidly from physical to digital products, raising the availability of products in different countries. Choice sets have nevertheless not converged across countries, and observers point to copyright-related transaction costs as an obstacle to greater availability. Policy makers are now contemplating various copyright reforms that could reduce these trade costs, raising the question of how much benefit they would create for consumers and producers around the world. We address these questions with a structural model of supply and demand for music in 17 countries, which we employ to counterfactually simulate the effect of a European digital single market on the welfare of consumers and producers. We also simulate autarky and worldwide frictionless trade – in which all products are available in all countries – allowing us to quantify both the conventional gains from status quo trade as well as the maximum possible gains available to free trade. Greater availability of products resulting from easing of copyright restrictions would raise per capita gains to producers in Europe more than in North America. Finally, we find that a European single market would bring most of the benefits of worldwide frictionless trade to both consumers and producers alike.

Winner of Best Paper Award for ‘Best new paper that contributes to understanding of intellectual property policy in Europe’, offered by the interdisciplinary journal Internet Policy Review.

The full paper can be downloaded from the Joint Research Centre, the European Commission’s in-house science service.

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