Impact of Competition on Product Decisions: Movie Choices of Exhibitors

43 Pages Posted: 12 Feb 2013 Last revised: 13 Jan 2015

See all articles by A. Yesim Orhun

A. Yesim Orhun

University of Michigan, Stephen M. Ross School of Business

Sriraman Venkataraman

University of North Carolina (UNC) at Chapel Hill - Marketing Area

Pradeep K. Chintagunta

University of Chicago

Date Written: December 22, 2014

Abstract

We empirically study the impact of entry of a new theater on two important product decisions that incumbents in the movie exhibition industry face: 1) whether to invest in screening movies that are expected to be popular and 2) when to adopt new releases. For theaters, both of these decisions feature a cost-demand tradeoff inherent in quality decisions; while screening popular and recent movies brings more patrons to the theater, distributors take a higher share of the revenue for such movies. The impact of competitive entry on the incumbent's quality decisions is ambiguous, as it may simultaneously increase the competitive pressure to invest more in these dimensions of quality and also change the demand conditions that incumbents face. We find that incumbent theaters do not increase the provision of popular and recent movies in response to rival entry. To identify the role of competitive incentives, we study the differential impact of entry based on whether or not the entrant belongs to the same parent firm as the incumbent theaters. This comparison reveals that competitive incentives do lead to incumbents screening movies with high expected success more frequently and adopting movies sooner. The product responses we document have important implications for the revenue impact of entry and the conclusions that researchers can draw from this impact. Ignoring the provision of these quality dimensions suggests cannibalization to exceed business stealing, a conclusion that is reversed when we account for endogenous product responses. We also show that our findings on popularity and recency cannot be explained by concomitant changes in theaters' other product decisions, such as the variety of movies screened.

Keywords: Product Competition, Quality, Entry, Cannibalization, Business Stealing, Retailing

JEL Classification: L10, L40

Suggested Citation

Orhun, A. Yesim and Venkataraman, Sriraman and Chintagunta, Pradeep K., Impact of Competition on Product Decisions: Movie Choices of Exhibitors (December 22, 2014). Available at SSRN: https://ssrn.com/abstract=2215111 or http://dx.doi.org/10.2139/ssrn.2215111

A. Yesim Orhun (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Sriraman Venkataraman

University of North Carolina (UNC) at Chapel Hill - Marketing Area ( email )

Chapel Hill, NC 27599
United States

Pradeep K. Chintagunta

University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8015 (Phone)
773-702-0458 (Fax)

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