Price Discrimination and Copyright Law: Evidence from the Introduction of Dvds

Abstract

This paper examines the welfare effects of intellectual property protection, accounting for firms' optimal responses to legal environments. I examine firms' use of indirect price discrimination in response to U.S. copyright law preventing 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 find that studios' use of indirect price discrimination benefits consumers and harms retailers.

Optimal pricing under E.U. copyright law further benefits studios and consumers. I also reanalyze these issues assuming continued DVD adoption.