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Price Discrimination, Copyright Law, and Technological Innovation: Evidence from the Introduction of DVDs

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  • Julie Holland Mortimer

Abstract

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.

Suggested Citation

  • Julie Holland Mortimer, 2005. "Price Discrimination, Copyright Law, and Technological Innovation: Evidence from the Introduction of DVDs," NBER Working Papers 11676, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:11676
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    More about this item

    JEL classification:

    • L0 - Industrial Organization - - General
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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