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The Effects of Vertical Integration on the Release of New Films

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Abstract

This paper both theoretically and empirically addresses how a vertical structure in the motion-pictures industry determines the number of prints a distributor releases of a new film. A simple theoretical model shows that the optimal number of copies is increasing on the expected demand for the film and the revenue share of the distributor, and decreasing on the cost of each copy. The model also predicts that the optimal number of copies will decrease with the number of theaters that are vertically integrated with the distributor, as long as running a cinema requires financing a non-negligible cost of capital. The theoretical results are empirically tested using a very rich dataset of films exhibition patterns in the major Chilean markets. The empirical results show that, on average, a non-integrated distributor releases 8 more copies than an integrated distributor.

Suggested Citation

  • Claudio Agostini & Eduardo Saavedra, 2009. "The Effects of Vertical Integration on the Release of New Films," ILADES-Georgetown University Working Papers inv222, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
  • Handle: RePEc:ila:ilades:inv222
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    References listed on IDEAS

    as
    1. 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.
    2. De Vany, Arthur S & Walls, W David, 1997. "The Market for Motion Pictures: Rank, Revenue, and Survival," Economic Inquiry, Western Economic Association International, vol. 35(4), pages 783-797, October.
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    Keywords

    Motion-Pictures; Vertical Integration; Release of New Films;

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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