The VCR Revolution
Once the VHS standard was adopted foe videocassette recorders, ownership of the tape players grew phenomenally. By the end of the 1980s, more than 70 percent of U.S. households owned this equipment, thereby creating the demand for movie rentals on videotape. At first the rental industry was quite profitable, but there were no significant barriers to entry. Any would-be entrepreneur could rent space, put up a few shelves, and get in on the action. Because inputs used by the industry (low-wage workers and simple rental space) were readily available at market prices, the industry had a perfectly elastic long-run supply curve ---it could easily meet exploding demand with no increase in price. Between 1982 and 1987, the number of tape rental outlets grew fourfold and the standard price for grocery stores and mini-marts were stocking movie for rental.