The Decreasing Excludability of Digital Music: Implications for Copyright Law

Since the advent of the file-sharing program Napster in June of 1999, copyright infringement has plagued the recorded music industry. We review the evidence on piracy and its effect on record industry profits. We then model the behavior of file sharers and music producers under different remuneration and legal regimes using a stage game. We find that under certain conditions, the removal of copyright laws for recorded music is welfare improving. There is also a parameter space where public sector music distribution combined with a tax-payer funded subsidy of music production is welfare dominant.