Revenue Sharing as Compensation for Copyright Holders

Abstract

In the vast majority of the literature on the economics of copyright royalties, it is assumed that the copyright holder is remunerated either by a fixed payment or by a payment that amounts to an additional marginal cost to the user, or both. However, in some significant instances in the real-world, copyright holders are constrained to a compensation scheme that involves revenue sharing. That is, the copyright holder takes as remuneration a part of the user’s revenue. In essence, the remuneration is set as a tax on the user’s revenue. This paper analyses such remuneration mechanisms, establishing and analysing the optimal tax rate, and also the Nash equilibrium tax rate that would emerge from a fair and unconstrained bargaining problem. The second option provides a rate that may be useful for regulatory authorities.