The Competitive Dynamics of New DVD Releases

Abstract

We study the market for new (movie) DVDs in the United States. Our demand model captures seasonality, freshness (i.e. time between theatrical and DVD release), and state dependence. We also develop a structural model of dynamic competition in which studios balance waiting for high demand weeks, against reduced freshness, and against competitive crowding. We find that studios emphasize DVD revenues from larger movies (by theatrical revenue) over DVD revenues from smaller movies. Studios also emphasize revenue from consumers who prefer larger and fresher movies. These behaviors are consistent with managerial conservatism: studio executives forgo DVD revenues from smaller movies to ensure the DVD success of larger movies.

Keywords: Dynamic Competition, Time-Nonhomogeneous Markov Perfect Equilibrium, Release Timing, Motion Picture Industry, Managerial Conservatism