Erickson, Perez and Sinha (2017)

Source Details

Erickson, Perez and Sinha (2017)
Title:	How Much Do Consumers Value Interoperability? Evidence from the Price of DVD Players
Author(s):	Erickson, K., Perez, J.R., Sinha, S.
Year:	2017
Citation:	Erickson, K., Perez, J.R. and Sinha, S. (2017) How Much Do Consumers Value Interoperability? Evidence from the Price of DVD Players. Available: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2998767 (last accessed 12/03/2023)
Link(s):	Definitive , Open Access
Key Related Studies:	Katz and Shapiro (1985) Elkin-Koren (2007) Favale (2008) Darroch (2012) Samuelson (2016)
Discipline:	O34: Intellectual Property and Intellectual Capital
Linked by:

About the Data
Data Description:	The study draws on a sample of 277 DVD players offered for sale on Amazon on or after 1 January 2010. The study tests the effect on the prices of players through an analysis of a number of variables relating to the presence or absence of DRM circumvention features. Results were analysed using a quasi-experimental approach to estimate the Average Treatment Effect of the presence of interoperability features on the price of the DVD Players.
Data Type:	Primary data
Secondary Data Sources:
Data Collection Methods:	Web analytic (online user trace data)
Data Analysis Methods:	Multivariate Statistics
Industry(ies):	Television programmes Film and motion pictures
Country(ies):	United States
Cross Country Study?:	No
Comparative Study?:	No
Literature review?:	No
Government or policy study?:	No
Time Period(s) of Collection:	January 2010 - July 2016
Funder(s):

Abstract

“Digital Rights Management (DRM) systems provide manufacturers the ability to control the use of their products after sale, imposing legal and technical restrictions on the functionality available to consumers. For example, the DRM system used in consumer DVD prevents players from being interoperable with unauthorised copies and well as authorized content (films) sold in different regions of the globe. Theory on interoperability and the ‘installed base’ identifies local benefits to consumers who either stay with an incompatible standard or adopt an interoperable system, with welfare effects from both cases. We explore the relationship between interoperability features and consumer willingness to pay, using an original dataset on consumer media players. We hypothesize that consumers derive specific benefit from backwards interoperability which enables playback of legacy disc formats the consumer may already own. We further hypothesize that consumers value forwards interoperability between their device and new and emerging technologies.
Using a quasi-experimental setup, we use an Average Treatment Effect (ATE) estimator to evaluate the effect of interoperability features in new and used DVD players obtained from Amazon product listings. Nearest-neighbour matching is used to control for features such as manufacturer, technical specifications and condition of players. Based on analysis of the price and sales performance of 277 DVD players, we find that interoperability has a significant impact on price in the forwards direction. Players capable of playing new file formats such as Xvid command an average price which is $19.06 USD higher than the non-treated group. However, we find limited support for the impact of backwards compatibility on price, either for new or used players. The ability to play DVDs from multiple regions shows a moderately significant effect on price in our sample.”

Main Results of the Study

• The prices for DVD players are significantly positively related to interoperability features, suggesting that consumers value interoperability features in their products.
• Specific features of interoperability vary in their value. For example, consumers in the Amazon market do not appear to value multi-region playback features, or interoperability in the backwards direction with content they already own.
• The presence of Xvid has a significant effect on the price consumers are willing to pay for DVD players, suggesting consumers value forwards compatibility for new file types and open-ended technological features.

Policy Implications as Stated By Author

The study suggests that policy makers should promote both backwards and forwards interoperability by limiting DRM restrictions.

Coverage of Study

Coverage of Fundamental Issues

Issue	Included within Study
Relationship between protection (subject matter/term/scope) and supply/economic development/growth/welfare
Relationship between creative process and protection - what motivates creators (e.g. attribution; control; remuneration; time allocation)?
Harmony of interest assumption between authors and publishers (creators and producers/investors)
Effects of protection on industry structure (e.g. oligopolies; competition; economics of superstars; business models; technology adoption)
Understanding consumption/use (e.g. determinants of unlawful behaviour; user-generated content; social media)

Coverage of Evidence Based Policies

Issue	Included within Study
Nature and Scope of exclusive rights (hyperlinking/browsing; reproduction right)
Exceptions (distinguish innovation and public policy purposes; open-ended/closed list; commercial/non-commercial distinction)
Mass digitisation/orphan works (non-use; extended collective licensing)
Licensing and Business models (collecting societies; meta data; exchanges/hubs; windowing; crossborder availability)
Fair remuneration (levies; copyright contracts)
Enforcement (quantifying infringement; criminal sanctions; intermediary liability; graduated response; litigation and court data; commercial/non-commercial distinction; education and awareness)

Datasets

Sample size:	277
Level of aggregation:	DVD Players
Period of material under study:	January 2010 - July 2016