Working Paper: NBER ID: w11676
Authors: 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.
Keywords: price discrimination; copyright law; technological innovation; DVDs; welfare effects
JEL Codes: L0; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US copyright law (K11) | indirect price discrimination (D49) |
| indirect price discrimination (D49) | consumer welfare (D69) |
| indirect price discrimination (D49) | retailer outcomes (L81) |
| EU copyright law (K11) | direct price discrimination (L11) |
| direct price discrimination (L11) | studio profits (L82) |
| direct price discrimination (L11) | consumer welfare (D69) |
| DVD technology adoption (O39) | pricing strategies (D49) |
| DVD technology adoption (O39) | consumer welfare (D69) |