The effect of film piracy on paid consumption at the university of Wales Institute, Cardiff

Abstract

New information technology has reduced marginal production and distribution costs of information goods to negligible levels and promises to revolutionise many industries. Unpaid copies of digital products have been argued that they can be as good as paid first- generation copies, and their availability can undermine the ability of sellers to cover first-copy costs. As a result, unpaid distribution has emerged as a major issue facing the music and movie industries in the past few years. Using survey data on movie consumption by 50 University of Wales Institute, Cardiff students, we ask whether unpaid consumption of movies displaces paid consumption. Employing a cross-sectional empirical approach, we find large and statistically significant evidence of displacement. Using the most appropriate empirical specifications, we find that unpaid first consumption reduces paid first consumption by about 0.93 of a unit and has a smaller effect on paid second consumption, displacing it about 0.36 of a unit. These estimates indicate that unpaid consumption, which makes up 20.43 percent of movie viewing in our sample, reduced paid consumption in our sample by 14.5 percent.