PARALLEL IMPORTATION AND SERVICE QUALITY: AN EMPIRICAL INVESTIGATION OF COMPETITION BETWEEN DVDS AND CINEMAS IN NEW ZEALAND
Investigations into the causes and effects of parallel importing have concentrated on price discrimination, but arbitrage can also occur on non-price dimensions. Using a natural experiment in the New Zealand film distribution industry between May 1998 and November 2001, we examine the effect of parallel importing on quality as it relates to the timing of the availability of film media. We demonstrate that (a) cinema revenues were undermined as consumers substituted viewing films on parallel imported DVDs for the cinema format and (b) that studios responded to the threat of parallel imported DVDs by bringing forward the release of films into New Zealand cinemas. The reduced delay between US and New Zealand cinematic release dates is shown to be consistent with the introduction of competition when timing is a dimension of quality and choice. We conclude that parallel importation of DVDs almost certainly resulted in a net increase in welfare in New Zealand.
* Senior Associate, CRA International. Email: MBurgess{at}crai.com.
** Professor of Economics, Victoria University of Wellington; Research Principal, New Zealand Institute for the Study of Competition and Regulation. Email: lew.evans{at}vuw.ac.nz. The authors would like to thank the following people for their assistance: Graeme Guthrie, Roy Hanrahan, Bill Hood, James Mellsop, Kieran O'Connell, Chris Osbourne, Victoria Pearson, Mark Pettit, Warren Prowse and Warwick Rothnie, and participants of the International Bar Association conference (Auckland, New Zealand, 2004).