Vertical Integration during the Hollywood Studio Era
The Hollywood studio system--production, distribution, and exhibition vertically integrated--flourished until 1948, when the famous Paramount decision forced the divestiture of theater chains and the abandonment of a number of vertical practices. Although many of the banned practices have since been posited to have increased efficiency, evidence of an efficiency-enhancing rationale for theater ownership has not been presented. This paper explores the hypothesis that theater chain ownership promoted efficient ex post adjustment in the length of film runs--specifically, abbreviation of unexpectedly unpopular films. Extracontractual run-length adjustments are desirable because demand for a film is not revealed until the film is actually exhibited. The paper employs a unique data set of cinema booking sheets. It finds that run lengths for releases by vertically integrated film producers were significantly--economically and statistically--more likely to be altered ex post. The paper documents and discusses additional practices intended to promote flexibility.
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