The introduction of infinite durability to an information good and the decision to buy or rent: evidence from the film industry

Abstract

ABSTRACT Home entertainment markets have seen dramatic declines in revenues over the last 10 years due to the digital revolution, making new adaptation strategies of crucial importance to maintaining existing profitability. Recently, the film industry has worked with related firms to develop a standardized ecosystem for the sale and access to digital versions of their films. This system, known as UltraViolet, embodies infinite durability; the perpetual access to a purchased film across computing platforms and time. The author makes use of exogenous variation in the implementation of this system to study the effect the introduction of this new feature has had on the decision to buy or rent. His findings show that the inclusion of infinite durability creates enough value to spur increased purchasing behavior. Also, the inclusion of infinite durability creates a high degree of substitutability amongst products that include it in purchase markets. Lastly, the author found evidence that the lack of inclusion of infinite durability will spur consumers to rent rather than buy.