|Title:||Price Discrimination, Copyright Law, and Technological Innovation: Evidence From The Introduction of DVDs|
|Author(s):||Mortimer, J. H.|
|Citation:||Mortimer, J. H. (2005). Price discrimination, copyright law, and technological innovation: Evidence from the introduction of DVDs (No. w11676). National Bureau of Economic Research.|
|Link(s):||Definitive , Open Access|
|Key Related Studies:|
|About the Data|
|Data Description:||The primary dataset used for this study is a new dataset of DVD and VHS rental and sales transactions at video retail stores provided by Rentrak Corporation.The dataset contains transactions at 4,341 stores from January 2000 through June 2002. I eliminate 2,128 stores that did not carry most major titles because they exited the database at an early date or entered the database at a late date. This leaves 2,213 video retail stores. For all stores, I observe the zip code location.
To observe (or at least proxy for) local competitive conditions, I use Yellow Pages listings for all video retail stores in the United States, including Blockbuster and Hollywood Video stores, for 2000 through 2002. From these data, I identify the total number of video retail stores within the same zip code of each observed store in the Rentrak database. In addition, I utilize data from the 2000 U. S. Census on the demographic characteristics of each zip code.
|Data Type:||Primary and Secondary data|
|Secondary Data Sources:|
|Data Collection Methods:|
|Data Analysis Methods:|
|Cross Country Study?:||No|
|Government or policy study?:||No|
|Time Period(s) of Collection:||
U. S. copyright law effectively prevents direct price discrimination for copyright holders that sell to different markets. In response, these firms can engage in indirect price discrimination. I derive theoretical predictions about the use of indirect price discrimination, and I analyze how optimal pricing strategies differ for different products. Using data on VHS and DVD movie distribution, I find that firms’ pricing choices are consistent with the predictions of theory and that firms’ use of indirect price discrimination benefits consumers (but harms ancillary retailers). Finally, I examine what optimal pricing strategies might look like in a legal environment that permits direct price discrimination.
Main Results of the Study
Decision to price discriminate depends on the expected costs and benefits of doing so,and empirical evidence shows that firms account for the costs and benefits of indirect price discrimination when choosing their optimal pricing strategies. Specifically, both demographic effects and product quality levels differ across the VHS and DVD formats and contribute to the different pricing strategies chosen for these two formats. However, the most important difference for explaining firms’ pricing decisions seems to be the relative value of owning a movie, which varies by movie and also by format.Welfare effects of the current price discrimination strategies used by firms in the United States is also examined and found that indirect price discrimination benefits copyright holders but generally harms retailers. Consumer welfare is highest under the current price discrimination strategies in use; thus, for some titles, indirect price discrimination benefits consumers, while for other titles, consumers are made worse off by this form of price discrimination.Welfare effects of an alternative form of copyright protection is also estimated that would allow for direct price discrimination, and found that price discrimination under this law tends to benefit copyright holders and consumers at the expense of retailers.
Policy Implications as Stated By Author
Coverage of Study
|Level of aggregation:||Rental Priced|
|Period of material under study:||2000-2001|