Price Discrimination, Copyright Law, and Technological Innovation: Evidence from the Introduction of DVDs
NBER Working Paper No. 11676
This paper examines the welfare effects of intellectual property protection, accounting for firms' optimal responses to legal environments and technological innovation. I examine firms' use of indirect price discrimination in response to U.S. copyright law, which effectively prevents direct price discrimination. Using data covering VHS and DVD movie distribution, I explain studios' optimal pricing strategies under U.S. copyright law, and determine optimal pricing strategies under E.U. copyright law, which allows for direct price discrimination. I analyze these optimal pricing strategies for both the existing VHS technology and the new digital DVD technology. I find that studios' use of indirect price discrimination under US copyright law benefits consumers and harms retailers. Optimal pricing under E.U. copyright law also tends to benefit studios and consumers. I also reanalyze these issues assuming continued DVD adoption.
Published: Mortimer, Julie Holland. "Price Discrimination, Copyright Law, and Technological Innovation: Evidence from the Introduction of DVDs." Quarterly Journal of Economics 122, 3 (August 2007): 1307-50.
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