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Economic effects of vertical disintegration: the American motion picture industry, 1945 to 1955

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  • Gregory Mead Silver
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    Abstract

    In 1948, the United States Supreme Court declared the operations of eight of the nation’s largest motion picture studios in violation of the 1890 Sherman Antitrust Act. The decision ordered them to disintegrate their producer-distributor roles from cinemas. The Court believed this would promote competitive practices in a hitherto uncompetitive industry. However, these desired benefits were not entirely reached. Instead, by leading the Hollywood studio system to collapse, the Court also distorted the supplychain for motion pictures. This work utilizes Coasian analyses of transaction costs to show that institutional integration was an efficient structure for the motion picture industry. It explores the motives to integrate and the benefits it garnered. Having laid this groundwork, it then assesses the effects theatre divorcement had on the industry and offers plausible counterfactuals had the studios remained intact after 1948.

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    File URL: http://eprints.lse.ac.uk/30043/
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    Bibliographic Info

    Paper provided by London School of Economics and Political Science, Department of Economic History in its series Economic History Working Papers with number 30043.

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    Length: 126 pages
    Date of creation: Nov 2010
    Date of revision:
    Handle: RePEc:ehl:wpaper:30043

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    Web page: http://www.lse.ac.uk/economicHistory/
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    1. Susan Christopherson & Michael Storper, 1989. "The Effects of flexible specialization on industrial politics and the labor market: The motion picture industry," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 42(3), pages 331-347, April.
    2. Sedgwick, John & Pokorny, Michael, 1998. "The Risk Environment of Film Making: Warner Bros in the Inter-War Years," Explorations in Economic History, Elsevier, vol. 35(2), pages 196-220, April.
    3. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
    4. Lamson, Robert D, 1970. "Measured Productivity and Price Change: Some Empirical Evidence on Service Industry Bias, Motion Picture Theaters," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 291-305, March-Apr.
    5. Weinstein, Mark, 1998. "Profit-Sharing Contracts in Hollywood: Evolution and Analysis," The Journal of Legal Studies, University of Chicago Press, vol. 27(1), pages 67-112, January.
    6. Hanssen, F Andrew, 2000. "The Block Booking of Films Reexamined," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 395-426, October.
    7. Kenney, Roy W & Klein, Benjamin, 1983. "The Economics of Block Booking," Journal of Law and Economics, University of Chicago Press, vol. 26(3), pages 497-540, October.
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