Demand Shifts and Second Degree Price discimination - the Impact of DVDs on the Motion Pictures Industry

Abstract

This paper applies models of price discrimination to the motion picture industry. Movies are durable goods with no resale market. Therefore, price discrimination using time can be used. The distributors release the movie in two different periods: theaters and video. The first is a high quality product and the second is a low quality product issued in a later point in time. The quality gap between the two versions of the product has shrunk as the DVD technology penetrated the market. This paper compares two years: 1995 and 2000. Initial results show a difference between the two years. The most evident one is a shrinkage of the time between the theatrical release and the video releaseprice discrimination, motion picture industry, time consistency