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Vertical Integration during the Hollywood Studio Era

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  • F. Andrew Hanssen

Abstract

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.

Suggested Citation

  • F. Andrew Hanssen, 2010. "Vertical Integration during the Hollywood Studio Era," Journal of Law and Economics, University of Chicago Press, vol. 53(3), pages 519-543.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/605567
    DOI: 10.1086/605567
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    Cited by:

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    2. Marissa Beck & Fiona Scott Morton, 2021. "Evaluating the Evidence on Vertical Mergers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(2), pages 273-302, September.
    3. Thomas J. Miceli, 2022. "Investing in talent development: Theory and applications," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 1641-1650, September.
    4. Fleck, Robert K. & Hanssen, F. Andrew, 2016. "Persistence and change in age-specific gender gaps: Hollywood actors from the silent era onward," International Review of Law and Economics, Elsevier, vol. 48(C), pages 36-49.
    5. Henrekson, Magnus & Lakomaa, Erik & Sanandaji, Tino, 2021. "The Interaction of Schumpeterian Institutional Entrepreneurship and Hayekian Institutional Change in Innovative Industries," Working Paper Series 1409, Research Institute of Industrial Economics.
    6. Thomas J. Miceli, 2020. "Financing Talent Development: The Baseball Reserve System and the Hollywood Star System," Working papers 2020-22, University of Connecticut, Department of Economics.
    7. Thorsten Hennig-Thurau & S. Abraham Ravid & Olav Sorenson, 2021. "The Economics of Filmed Entertainment in the Digital Era," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 45(2), pages 157-170, June.
    8. Hazlett, Thomas W., 2022. "Free speech and the challenge of efficiency," Telecommunications Policy, Elsevier, vol. 46(9).
    9. Jordi McKenzie, 2023. "The economics of movies (revisited): A survey of recent literature," Journal of Economic Surveys, Wiley Blackwell, vol. 37(2), pages 480-525, April.
    10. Ricard Gil, 2015. "Does Vertical Integration Decrease Prices? Evidence from the Paramount Antitrust Case of 1948," American Economic Journal: Economic Policy, American Economic Association, vol. 7(2), pages 162-191, May.
    11. F. Andrew Hanssen & James W. Meehan Jr & Thomas J. Miceli, 2016. "Explaining Changes in Organizational Form," Journal of Sports Economics, , vol. 17(6), pages 523-557, August.

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