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Asset Specificity and Long-Term Contracts: The Case of the Motion-Pictures Industry

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  • Darlene C. Chisholm

    (Lehigh University)

Abstract

The proliferation of long-term contractual arrangements between actors and studios in the U.S. motion-pictures industry during the Age of the Studio (1929-48) is analyzed. Asset specificity and transaction-cost minimization explain the optimality of long-term over short-term agreements. In particular, the following historical factors prove to have been pivotal in increasing the degree of relationship-specific investment and decreasing the costs of transacting: the high degree of both industrial concentration and vertical integration; the prevalence of a star-promotion system; the U.S. v. Paramount antitrust litigation; and the rise of television as a substitute form of entertainment.

Suggested Citation

  • Darlene C. Chisholm, 1993. "Asset Specificity and Long-Term Contracts: The Case of the Motion-Pictures Industry," Eastern Economic Journal, Eastern Economic Association, vol. 19(2), pages 143-155, Spring.
  • Handle: RePEc:eej:eeconj:v:19:y:1993:i:2:p:143-155
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume19/V19N2P143_155.pdf
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    References listed on IDEAS

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    1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    2. Joskow, Paul L, 1985. "Vertical Integration and Long-term Contracts: The Case of Coal-burning Electric Generating Plants," Journal of Law, Economics, and Organization, Oxford University Press, vol. 1(1), pages 33-80, Spring.
    3. Crawford, Vincent P, 1988. "Long-term Relationships Governed by Short-term Contracts," American Economic Review, American Economic Association, vol. 78(3), pages 485-499, June.
    4. Cheung, Steven N S, 1983. "The Contractual Nature of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 26(1), pages 1-21, April.
    5. Masten, Scott E & Crocker, Keith J, 1985. "Efficient Adaptation in Long-term Contracts: Take-or-Pay Provisions for Natural Gas," American Economic Review, American Economic Association, vol. 75(5), pages 1083-1093, December.
    6. Mulherin, J Harold, 1986. "Complexity in Long-term Contracts: An Analysis of Natural Gas Contractual Provisions," Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(1), pages 105-117, Spring.
    7. Crocker, Keith J & Masten, Scott E, 1991. "Pretia ex Machina? Prices and Process in Long-Term Contracts," Journal of Law and Economics, University of Chicago Press, vol. 34(1), pages 69-99, April.
    8. Riordan, Michael H. & Williamson, Oliver E., 1985. "Asset specificity and economic organization," International Journal of Industrial Organization, Elsevier, vol. 3(4), pages 365-378, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Darlene Chisholm & Margaret McMillan & George Norman, 2010. "Product differentiation and film-programming choice: do first-run movie theatres show the same films?," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 34(2), pages 131-145, May.
    2. Cameron, Samuel & Collins, Alan, 1997. "Transaction costs and partnerships: The case of rock bands," Journal of Economic Behavior & Organization, Elsevier, vol. 32(2), pages 171-183, February.
    3. Darlene Chisholm, 2004. "Two-Part Share Contracts, Risk, and the Life Cycle of Stars: Some Empirical Results from Motion Picture Contracts," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 28(1), pages 37-56, February.
    4. Ricard Gil & Pablo T. Spiller, 2007. "The Organizational Implications of Creativity: The US Film Industry in Mid-XXth Century," NBER Working Papers 13253, National Bureau of Economic Research, Inc.
    5. W. D. Walls, 2009. "The Market for Motion Pictures in Thailand: Rank, Revenue, and Survival at the Box Office," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 8(2), pages 115-131, August.
    6. W. Walls, 2010. "Superstars and heavy tails in recorded entertainment: empirical analysis of the market for DVDs," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 34(4), pages 261-279, November.
    7. Ch'ng, Kean Siang, 2007. "Evolutionary Concept, Genetic Algorithm and Exhibition Contract in Movie Industry," MPRA Paper 5387, University Library of Munich, Germany, revised 19 Oct 2007.
    8. Darlene C Chisholm, 2011. "Motion Pictures," Chapters,in: A Handbook of Cultural Economics, Second Edition, chapter 39 Edward Elgar Publishing.
    9. Michael Pokorny & John Sedgwick, 2001. "Stardom and the Profitability of Film Making: Warner Bros. in the 1930s," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 25(3), pages 157-184, August.
    10. Wen-jhan Jane & Wei-peng Chen & Yuan-lin Hsu, 2015. "The impact of deregulation on the movie box office after Taiwan’s entry into the WTO: the difference-in-differences estimation," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 5(2), pages 289-308, December.

    More about this item

    Keywords

    Contracts; Motion Picture; Transactions;

    JEL classification:

    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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