Intellectual Property Rights or Liability Rules:How Do We Tackle Copyright Infringement in the Music Market ?Insights from Experimental Data

Abstract: The strategy of suing consumers for copyright infringement when they illegally download music adopted by major recording companies is premised on the assumption that actual suit raises the price of downloading and dissuades use of downloads in flavor of legal CDs. This experiments suggests that this assumption is questionable since a market for downloaded and copied music exists despite the fact that it is costless to copy, absent the prohibitions of copyright law. Consumers are willing to pay a non-zero price for a downloaded or copied music file, a price in general quite a bit below their willingness to pay for a CD, but quite a bit more than what would be expected for a product that can be obtained at zero cost. To prove this, we asked our participants their wtp for original and burned CDs using hypothetical as well as real choices. We compare our results with the usual market pricing and we explore infringing behaviors in order to verify if an increase in lawsuits is effective in reducing infringing activities and raising legal demand. From a policy perspective, our experimental findings seem to suggest that a change in the firms’ pricing policy which allow for a different and more affordable pricing strategy could partially eliminate the crowding-out part of illegal consumption, since consumers do not perceive downloaded/burned music files as cost-free, while maintaining positive profits. Our experimental results imply a more cautious treatment of copyright infringement by courts and legislators in the name of social welfare.