2. It increases monopoly power and transaction costs

When comparing copyrighted works to those in the public domain, the monopoly power created by copyright results in higher prices and lower availability (Buccafusco & Heald, 2013; Flynn et al., 2019; Heald, 2014, 2018; Li et al., 2018). Evidence also shows that the reverse is true: once copyright expires, works are more often performed (Cuntz, 2023; Watson et al., 2023) and lower prices of accessing copyrighted works encourage follow-on innovation (Biasi & Moser, 2021). Frictions and inefficiencies in the licensing market might explain the conflicting results. Contacting and negotiating with rightsholders can be time-consuming, leading to high transaction costs for license acquisition (Akmon, 2010; Vuopala, 2010). In some cases, the copyright owner cannot be identified, leading to so-called orphan works that cannot be licensed for use or re-use. The longer the copyright term, the more difficult it may be for potential licensees to locate the copyright owner. Because of a lack of empirical research, it is unclear, however, to what extent frictions in the licensing market and orphan works as an extreme case represent an economically important problem. In the context of entertainment formats, such as music and video, platforms implementing automated N&T systems switched focus from pure enforcement to enabling a digital licensing market. For example, around the time YouTube launched the affiliate program in 2009, in which the platform agreed to share advertising revenue with contributors, YouTube introduced its “Content ID” system, where rightsholders are notified of infringing content and can choose to block the allegedly infringing video or monetize the content by sharing advertising revenue. YouTube reports that over 90% of rightsholders choose monetizing, which has accumulated to $7.5 bn in advertising revenue paid to rightsholders from claims through the system since 2016 (YouTube, 2021). Over 9000 partners use the Content ID system, including large network broadcasters, movie studios, and record companies. In the second half of 2021, the Content ID system made close to 760 mn claims, of which only 0.5% were disputed, suggesting that it has become feasible to license millions of derivative works with negligible cost. The Content ID system is just one example of digital technology that has spurred the introduction of market mechanisms and allowed to circumvent the institutions that would traditionally be involved in the settling of copyright infringement cases (see Towse, 2017 for an overview of the history of music publishing and licensing), thereby potentially enhancing the efficiency of licensing markets. However, to date, no empirical studies estimate the welfare effects of algorithmic licensing.