Economics of Technology Standards: Implications for Offline Movie Piracy in a Global Context

Reduced sizes of music files due to compression technologies has allowed for piracy to become a rampant problem on the Internet even in the absence of significant bandwidth. However given the large sizes of video files, movies are still largely pirated by duplicating DVDs, VCDs and other physical media. Conventionally DVD formats have differed across various regions in the world albeit for controlling theatrical releases of movies. This paper formulates an analytical model to study the implication of varying technology standards of DVD players across different regions on the piracy of movies. This research identifies conditions under which consumers will engage in global and regional piracy. Our findings show that maintaining separate technology standards across regions is effective in not only thwarting global piracy but it also allows movie studios to create variable quality movies and engage in discriminatory pricing. While consumers may still engage in local piracy, the overall profits to the firm under variable technology standards are shown to be higher then when a common DVD standard is adopted across all regions. The paper concludes with recommendations for research and practice.