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Digitization, Copyright, and the Welfare Effects of Music Trade

Abstract: 

Since the launch of the iTunes Music Store in the US in 2003 and in much of Europe in the following years, music trade has shifted rapidly from physical to digital products, raising the availability of products in di erent countries. Despite substantial growth in availability, choice sets have 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. The possibility of these changes raises the question of how much bene t 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 e ect of a European digital single market (the equivalent of a pan-European copyright regime) 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. Existing and additional trade have di erent patterns of bene t to consumers and producers. Status quo trade bene ts consumers everywhere, but European consumers have bene ted more than North Americans.
Existing trade has had large bene ts to American producers but on balance small bene ts to European producers. Additional trade would continue the pattern of consumers bene ts with larger gains to European consumers but would reverse the pattern for producers. 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 nd that a European single market would bring most of the bene ts of worldwide frictionless trade to both consumers and producers alike.