Using Markets to Measure the Impact of File Sharing on Movie Revenues

File sharing provides a useful laboratory for investigating the economic importance of intellectual property protection. There are two main empirical challenges: overcoming the non-random timing of the arrival date of illicit copies and dealing with low statistical power due to limited sample size. This paper uses markets to address these issues in the context of movies. I show forwardlooking markets can be used to establish the unobserved counter-factual of how movie revenues would change on any possible file sharing release date, particularly those prior to the theatrical premier. Using movie-level tracking stocks in conjunction with the arrival date of illicit copies, I find that file sharing has only a modest impact on box office revenue. ∗I thank a large BitTorrent index site and the Hollywood Stock Exchange for furnishing me with data. A portion of this paper was written while I was a Visiting Scholar at the Management & Strategy Department at the Kellogg School of Management. Correspondence should be sent to 1300 Sunnyside Avenue Lawrence, KS 66045 or [email protected]. †Hollywood Stock Exchange, HSX, and the HSX logo are trademarks or registered trademarks of Hollywood Stock Exchange, LLC or its affiliates in the U.S. and/or other countries.