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Fairness Ex Ante and Ex Post: Experimentally Testing Ex Post Judicial Intervention into Blockbuster Deals

Authors

  • Christoph Engel,

    Corresponding author
    1. Max-Planck-Institute for Research on Collective Goods
      Christoph Engel, Max-Planck-Institute for Research on Collective Goods, Kurt-Schumacher-Straße 10, 53113 Bonn, Germany; email:, engel@coll.mpg.de. Kurschilgen is at the Max-Planck-Institute for Research on Collective Goods.
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  • Michael Kurschilgen

    1. Max-Planck-Institute for Research on Collective Goods
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Christoph Engel, Max-Planck-Institute for Research on Collective Goods, Kurt-Schumacher-Straße 10, 53113 Bonn, Germany; email:, engel@coll.mpg.de. Kurschilgen is at the Max-Planck-Institute for Research on Collective Goods.

Abstract

The market for copyrights is characterized by a highly skewed distribution of profits: very few movies, books, and songs generate huge profits, whereas the great bulk barely manages to recover production cost. At the moment when the owner of intellectual property grants a license (ex ante), neither party knows the true value of the traded commodity. A seemingly odd provision from German copyright law, the so-called bestseller paragraph, stipulates that the seller of a license has a legally enforceable right to a bonus in case the work (ex post) turns out a blockbuster. We experimentally explore the effect of the provision on market prices, on the number of deals struck, and on perceived fairness. Our results show that the provision leads to lower prices for copyrights. More copyrights trade. The buyers express less ex post discontent.

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