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The Economics Of Dvd Rentals

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by Felix Salmon
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May 21 2008 12:00am EDT

The Economics of DVD Rentals

Aaron Schiff says that it's "very cheap" to rent a DVD in Japan: he pays ¥350 ($3.39) for an overnight new release. Here in Berlin, it's €3.40 ($5.36) to rent a DVD overnight. But there's a twist: the headline rental rate is just half that, €1.70 ($2.68), and applies if you rent a DVD and return it the same evening, before the store closes at 1am.

This is puzzling: why does it cost more to keep a DVD overnight, when the store is closed and no one else could rent it, than it does to keep a DVD all day, when you're depriving the store of the opportunity of renting the DVD? I suspect it's a form of variable pricing: people with jobs, who like to watch a DVD and fall asleep, pay a premium, while the very cost-sensitive, who are happy schlepping a DVD back to the rental store at midnight, get a price they can afford.

Incidentally, the German version of Netflix, Amango, charges €10/month ($15.76) for one DVD and €20/month ($31.51) for three DVDs; the equivalent prices at Netflix are $9 and $17, respectively. Yet another case of purchasing power being roughly one-to-one, even as the exchange rate is closer to 1.6.

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