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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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    2. Hazlett, Thomas W., 2022. "Free speech and the challenge of efficiency," Telecommunications Policy, Elsevier, vol. 46(9).
    3. 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.
    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.
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    6. Chung, Hoe Sang & Kim, Min & Yi, Gihwan, 2018. "Screening decisions of vertically integrated theaters in the Korean movie industry," Economics Letters, Elsevier, vol. 170(C), pages 6-9.
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    8. 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.
    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.
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