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The impact of supplier bargaining power on the advertising costs of movie sequels

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  • Judy Ma
  • Dongling Huang
  • M. Kumar
  • Andrei Strijnev

Abstract

Movie sequels, a type of brand extension, are prevalent in today’s motion picture industry. Prior literature on brand extensions supports the intuition that attaching established brand names (e.g., titles of box-office hits) to new products decreases advertising costs. We counter this intuition and examine factors that may increase advertising costs for movie sequels. Specifically, we investigate the consequences of asset specificity and bargaining power—concepts from transaction cost economics—in the context of the motion picture industry. We find a positive relationship between the bargaining power of the movie studio’s suppliers and advertising expenditures for the movie sequel. We also find evidence of a moderating effect: higher bargaining power of the movie studio dampens the impact of supplier bargaining power on advertising. This is the first study to measure the effect of supplier bargaining power on movie studios’ marketing decisions. In a broader context, our findings not only challenge the notion that brand extensions are cost saving, but are also novel in linking transaction cost constructs to the advertising behavior of firms. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Judy Ma & Dongling Huang & M. Kumar & Andrei Strijnev, 2015. "The impact of supplier bargaining power on the advertising costs of movie sequels," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 39(1), pages 43-64, February.
    • Handle: RePEc:kap:jculte:v:39:y:2015:i:1:p:43-64
    DOI: 10.1007/s10824-014-9223-4
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