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Is Online Music Locked in by Leveraging?

September 2006

Communications & Stratégies No 63

Pay-to-play online music distribution, digital rights management (DRM) systems and hard-drive-based digital music players are new industries. However, they have already attracted several judgments and enquiries from the competition authorities. The first of these is already six years old. In October 2000, the European Commission approved the merger between Time Warner and AOL on the condition that AOL break its tie with Bertelsmann and its music catalogue. That remedy was intended to eliminate the risk, identified by the Commission, that the merged company would dominate the online music distribution market. In November 2004, France’s competition watchdog, the Conseil de la Concurrence, dismissed a claim by VirginMega against Apple. VirginMega manages a download platform on the Internet. Apple refused to grant the plaintiff a license to use Fairplay, Apple’s proprietary digital rights management software. These two cases will be used to show how to perform an economic analysis of the anticompetitive effects of vertical integration. 

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