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 importinghave concentrated on price discrimination, but arbitrage canalso occur on non-price dimensions. Using a natural experimentin the New Zealand film distribution industry between May 1998and November 2001, we examine the effect of parallel importingon quality as it relates to the timing of the availability offilm media. We demonstrate that (a) cinema revenues were underminedas consumers substituted viewing films on parallel importedDVDs for the cinema format and (b) that studios responded tothe threat of parallel imported DVDs by bringing forward therelease of films into New Zealand cinemas. The reduced delaybetween US and New Zealand cinematic release dates is shownto be consistent with the introduction of competition when timingis a dimension of quality and choice. We conclude that parallelimportation of DVDs almost certainly resulted in a net increasein welfare in New Zealand.