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Price Discrimination, Copyright Law, and Technological Innovation: Evidence From The Introduction of DVDs

  • Julie Holland Mortimer

U. S. copyright law effectively prevents direct price discrimination for copyright holders that sell to different markets. In response, these firms can engage in indirect price discrimination. I derive theoretical predictions about the use of indirect price discrimination, and I analyze how optimal pricing strategies differ for different products. Using data on VHS and DVD movie distribution, I find that firms' pricing choices are consistent with the predictions of theory and that firms' use of indirect price discrimination benefits consumers (but harms ancillary retailers). Finally, I examine what optimal pricing strategies might look like in a legal environment that permits direct price discrimination. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 122 (2007)
Issue (Month): 3 (08)
Pages: 1307-1350

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Handle: RePEc:tpr:qjecon:v:122:y:2007:i:3:p:1307-1350
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