Piracy and New Product Creation: A Bollywood Story

37 Pages Posted: 13 Aug 2014  

Rahul Telang

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Joel Waldfogel

University of Minnesota - Twin Cities - Carlson School of Management; National Bureau of Economic Research (NBER); University of Minnesota - Twin Cities - Department of Economics

Date Written: August 6, 2014

Abstract

While copyright research in the decade following Napster focused mostly on whether file sharing undermines demand, research has more recently asked how piracy and other aspects of digitization affect the supply of new products. Although revenue has declined sharply, evidence that weakened effective copyright protection undermines creation has been elusive. Instead, because of cost-reducing effects of digitization, the number of new recorded music products – and their apparent quality – has increased. This study examines movie production in India during a period of technological change that facilitated large-scale piracy. The diffusion of the VCR and cable television in India between 1985 and 2000 created substantial opportunities for unpaid movie consumption. We use this episode to study possible impacts of piracy on supply. We first document, from narrative sources, conditions conducive to piracy as these technologies diffused. We then provide strong circumstantial evidence of piracy in diminished appropriability: movies’ revenues fell by a third to a half, conditional on their ratings by movie-goers and their ranks in their annual revenue distributions. Weaker effective demand undermined creative incentives. While the number of new movies released had grown steadily from 1960 to 1985, it fell markedly between 1985 and 2000, suggesting a supply elasticity in the range of 0.2-0.7. Thus, our study provides affirmative evidence on a central tenet of copyright policy, that stronger effective copyright protection effects more creation. We contrast our findings with evidence from other contexts.

Keywords: VCR, piracy, copyright, Bollywood, innovation, intellectual property, movie industry

Suggested Citation

Telang, Rahul and Waldfogel, Joel, Piracy and New Product Creation: A Bollywood Story (August 6, 2014). Available at SSRN: https://ssrn.com/abstract=2478755

Rahul Telang (Contact Author)

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

4800 Forbes Ave
Pittsburgh, PA 15213-3890
United States
412-268-1155 (Phone)

Joel Waldfogel

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States

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