ECONOMICS OF MOVIE PIRACY: THEATRE MOVIES AND DVDS (Preliminary and Incomplete Draft, July 2007)

With the rapid advancement of technology, movie piracy has become a real concern to the movie industry. Many movie producers lament about how the existence of rampant movie piracy has greatly reduced their profits, and they take concerted efforts in fighting both online and hard goods piracy. In order to evaluate how movie piracy has affected both movie producers and consumers, we develop a simple theoretical model consisting of both the traditional theatrical movie market and the modern digital video discs (DVD) market. While prices, demand and profits of movie theatres and DVDs are adversely affected by movie piracy, consumers gain most with an early availability of pirated movies. However when taking into consideration the overall social welfare, it is best to protect the movie industry against piracy in the first period, and allow consumers to enjoy the availability of free pirated copies in the second period