sharing networks, which means the estimates are less likely to be biased for the pre-theatrical period when there are relatively few movies available illicitly. I can uncoverthe average impact of a ﬁle sharing release on each day, and use these estimates toappraise economic and statistical signiﬁcance. I ﬁnd these displacement eﬀects to beof modest size and indicating only a small impact on aggregate revenues. This smalleﬀect is perhaps the result of low quality initial ﬁle sharing copies and the superiorityof the theater viewing experience.There are several advantages to using markets to quantify the impact of illicitmovie downloads The ﬁrst relates is establishing causality and creating appropriatecounter-factuals. There is a small literature on the economics of movie piracy (Dana-her and Waldfogel, 2012; Ma et al, 2013).
In most observational studies, the ﬁlesharing release pattern is treated as exogenous across movies. But this is unlikely tobe true for both supply reasons (studios working harder to avoid releases for movieswhich they believe will be more negatively impacted) and demand reasons (ﬁle sharingparticipants work harder to release movies which they believe will have greater illicitdemand and likely larger negative damages).
shows that movies availableon ﬁle sharing networks prior to their theatrical release are diﬀerent across severalobservable characteristics including the releasing studio, genres and ratings by criticsor users. Presumably there are many unobserved diﬀerences as well.
Finding earlierreleases have higher or lower revenues could reﬂect sample selection and heteroge-neous eﬀects rather then a causal impact on revenues. Markets help alleviate thisbias because both unreleased and newly released movies are used to infer the impactat every time. In particular this means in the period prior to the theatrical release,when relatively few ﬁlms are available on ﬁle sharing networks, there is a rather fullsample and the bias will be small. This is important since such “pre-releases” are of particular policy and academic interest.A second advantage is improved statistical power. There is a substantial increasein the amount of variation used to measure economic damages. In typical obser-vational studies, there is essentially one observation per movie (the time of the ﬁlesharing release and the total revenue). With markets, the price moves continuously
The paper also related to the literature measuring the impact of piracy on the software industry.For example Athey and Stern (2013) show that restricting access to ﬁle sharing networks has littleimpact on piracy rates for operating systems.
In principle this could be addressed using an instrumental variable approach, but it is hard tothink of variables which capture the complex dynamics which govern this equilibrium process.