Impact of Copyright Protection on Re-creation of Digital Contents When Expression and Idea Are Divisible

Abstract

We consider the case in which the expression and the idea are completely divisible and copyright protection cannot be applied to very closely substitutable derivative work. Even if the ideas of these works are very similar, the substitute is regarded as an independent work, and not as a copyright infringement. Therefore, it is possible to supply closely substitutable goods based on similar ideas. Thus, the monopoly rent of the copyright holders might decrease, so they face the risk of failing to recover the initial cost. Assuming Bertrand competition with zero marginal cost, considering the nature of digital contents, we show that imitators have no incentive to enter the market in vertical product differentiation except in the case of a sufficiently high quality of imitation. Even if they can enter the product-differentiated market, they do not compete and divide the market to produce differentiated works. Thus, the original producer’s monopolistic profit is maintained under the general copyright system.