On November 18, 2006, the New York Times reported that “The Universal Music Group, the world’s largest music company, filed a copyright infringement lawsuit yesterday against MySpace, the popular social networking Web site, for allowing users to upload and download songs and music videos. . . . In court papers, Universal noted that unauthorized copies of music and video from one of its biggest acts, U2, were easily available on the site, as is material from an unreleased album by the rap star Jay-Z.” Allowing Internet users to download music and video for free limits Universal’s right to dispose of the music and video as it chooses; in particular, it limits Universal’s right to give access to its music only to those who have paid for it. In other words, it limits Universal’s property rights.
a. If everyone were to obtain music and video content for free from websites such as MySpace, instead of paying Universal, what would Universal’s producer surplus be from music sales? What are the implications for Universal’s incentive to produce music and video content in the future?
b. If Universal loses the lawsuit and music can be freely downloaded from the Internet, what do you think will happen to mutually beneficial transactions (the producing and buying of music) in the future?