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Dynamic Common Agency, Vertical Integration, and Investment: The Economics of Movie Distribution

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Author Info
Darren Filson (Claremont Graduate University)

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Abstract

This paper analyzes the impact of vertical integration on investment and other strategies in a dynamic common agency framework. Movie distribution is used as a motivating example. The model matches several facts about movie distribution; distributors avoid head-to-head new hit releases, hits have longer runs than flops, and distributors receive the lion’s share of value generated by hits. Welfare comparisons show that integration is privately profitable and may improve social welfare even though it reduces industry profits. The e.ects of integration on strategies and welfare depend critically on how integration a.ects the bargaining power of the non-integrated firm.

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Publisher Info
Paper provided by Claremont Colleges in its series Claremont Colleges Working Papers with number 2003-07.

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Date of creation: Jan 2003
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Handle: RePEc:clm:clmeco:2003-07

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Related research
Keywords: common agency; exclusive dealing; entertainment; film; licensing;

Find related papers by JEL classification:
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis

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References listed on IDEAS
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  1. Pakes, Ariel & McGuire, Paul, 2001. "Stochastic Algorithms, Symmetric Markov Perfect Equilibrium, and the 'Curse' of Dimensionality," Econometrica, Econometric Society, vol. 69(5), pages 1261-81, September.
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  5. De Vany, A. & Walls, W.D., 1999. ""Uncertainty in the Movies: Does Star Power Reduce the Terror of the Box Office?"," Papers 98-99-10, California Irvine - School of Social Sciences.
  6. Bolton, Patrick & Whinston, Michael D, 1993. "Incomplete Contracts, Vertical Integration, and Supply Assurance," Review of Economic Studies, Blackwell Publishing, vol. 60(1), pages 121-48, January. [Downloadable!] (restricted)
  7. B. Douglas Bernheim & Michael D. Whinston, 1985. "Common Marketing Agency as a Device for Facilitating Collusion," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 269-281, Summer. [Downloadable!] (restricted)
  8. Maura P. Doyle & Christopher M. Snyder, 1999. "Information Sharing and Competition in the Motor Vehicle Industry," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1326-1364, December. [Downloadable!] (restricted)
  9. Kenneth S. Corts, 2001. "The Strategic Effects of Vertical Market Structure: Common Agency and Divisionalization in the US Motion Picture Industry," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 10(4), pages 509-528, December. [Downloadable!] (restricted)
  10. Darren Filson & Fernando Fabre & Alfredo Nava & Paola Rodriguez, 2001. "At the Movies: Risk Sharing and the Economics of Exhibition Contracts," Claremont Colleges Working Papers 2001-01, Claremont Colleges. [Downloadable!]
  11. Hanssen, F Andrew, 2000. "The Block Booking of Films Reexamined," Journal of Law & Economics, University of Chicago Press, vol. 43(2), pages 395-426, October.
  12. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Blackwell Publishing, vol. 62(1), pages 53-82, January. [Downloadable!] (restricted)
  13. Ravid, S Abraham, 1999. "Information, Blockbusters, and Stars: A Study of the Film Industry," Journal of Business, University of Chicago Press, vol. 72(4), pages 463-92, October. [Downloadable!] (restricted)
  14. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February. [Downloadable!] (restricted)
    Other versions:
  15. Ariel Pakes & Paul McGuire, 1994. "Computing Markov-Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model," RAND Journal of Economics, The RAND Corporation, vol. 25(4), pages 555-589, Winter. [Downloadable!] (restricted)
    Other versions:
  16. Charles M. Kahn & Dilip Mookherjee, 1998. "Competition and Incentives with Nonexclusive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 443-465, Autumn. [Downloadable!] (restricted)
    Other versions:
  17. David Martimort, 1996. "Exclusive Dealing, Common Agency, and Multiprincipals Incentive Theory," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 1-19, Spring. [Downloadable!] (restricted)
  18. De Vany, Arthur & Walls, W David, 1996. "Bose-Einstein Dynamics and Adaptive Contracting in the Motion Picture Industry," Economic Journal, Royal Economic Society, vol. 106(439), pages 1493-1514, November. [Downloadable!] (restricted)
  19. Gowrisankaran, Gautam, 1999. "Efficient representation of state spaces for some dynamic models," Journal of Economic Dynamics and Control, Elsevier, vol. 23(8), pages 1077-1098, August. [Downloadable!] (restricted)
  20. Kenney, Roy W & Klein, Benjamin, 1983. "The Economics of Block Booking," Journal of Law & Economics, University of Chicago Press, vol. 26(3), pages 497-540, October.
  21. Prat, A. & Rustichini, A., 1998. "Sequential common agency," Discussion Paper 95, Tilburg University, Center for Economic Research. [Downloadable!]
  22. Daniel P. O'Brien & Greg Shaffer, 1997. "Nonlinear Supply Contracts, Exclusive Dealing, and Equilibrium Market Foreclosure," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 6(4), pages 755-785, December. [Downloadable!] (restricted)
  23. Thomas E. Borcherding & Darren Filson, . "Conflicts of Interest in the Hollywood Film Industry: Coming to America - Tales from the Casting Couch, Gross and Net, in a Risky Business," Claremont Colleges Working Papers 2000-07, Claremont Colleges. [Downloadable!]
  24. Martimort, David, 1994. "Exclusive Dealing, Common Agency and Multiprincipals Incentive Theory," IDEI Working Papers 43, Institut d'Économie Industrielle (IDEI), Toulouse, revised 1996.
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