Institutional Assets and Competitive Advantages of French over U.S. Cinema, 1895-1914

This paper examines the influence of the complex interactions of the institutional environment, governance structures, and strategic assets on the creation and maintenance of the competitive advantages of leading firms. It introduces an original theoretical model combining the two complementary approaches of the new institutional economics (institutional environment and institutions of governance) with the resource-based view (strategic asset endowment of firms). This model is then used to investigate why French cinema gained and reinforced an initial competitive advantage over its U.S. counterpart from 1895 to 1914. Our findings show that a more favorable institutional environment explains the initial French advantage from 1895 to 1907. A culture of mutual forbearance between members of the elite combined with low levels of patent protection influenced the leading French cinema companies to concentrate on the creation of strategic assets such as supplies and studio facilities. Inside an environment of fierce competition and strong patent protection, U.S. cinema companies developed legal assets for patent wars on equipment. More economizing governance choices and contractual innovations by French firms at home and abroad reinforced the French advantage between 1908 and 1914. U.S. firms developed institutional assets to negotiate and enforce private cartels to the detriment of distribution assets. Later, U.S. antitrust law and conflicts of interests between cartel members influenced the emergence of independent U.S. firms with a strategic focus on cinema production and distribution assets. Ultimately, U.S. formal institutions reduced the transaction costs of local printed-film producers and provided more socially efficient forms of regulation than private cartel arrangements.