Digitization and Distribution: The Ends Against the Middle

72 Pages Posted: 12 Jun 2018 Last revised: 20 Jun 2019

Date Written: June 15, 2019

Abstract

We examine the transition from 35mm film to digital cinema technologies in the movie industry. First, we develop a theoretical model of theaters' scheduling decisions that allows us to examine the impact of digitization—a distribution cost reduction—on product assortment. The model predicts that digitization increases (decreases) the degree to which theaters concentrate the supply of screens to the top movie (namely supply concentration) when there is a supply shortage (excess) of screens for the movie. Second, we empirically investigate the South Korean movie market using detailed data on theaters’ daily scheduling decisions between 2006-16. We use two quasi-experimental analyses to assess the overall impact of digitization on two assortment dimensions: product variety and supply concentration. Although digitization helps theaters provide consumers with increased product variety, we show it also leads theaters to disproportionately increase supply concentration. Third, we test the model predictions about the impact of digitization on concentration by exploiting within-week variation in demand for movies. As predicted, we find that the increase in supply concentration is limited to weekend evenings. In other time slots, digitization decreases concentration. Overall, this study highlights the role of distribution costs as a mechanism through which digitization reshapes product assortment.

Keywords: Digitization, Intermediation, Product Variety, Concentration, Movies, Quasi-Experiment

JEL Classification: D22, L11, L82, O33

Suggested Citation

Yang, Joonhyuk and Anderson, Eric and Gordon, Brett R., Digitization and Distribution: The Ends Against the Middle (June 15, 2019). Available at SSRN: https://ssrn.com/abstract=3185847 or http://dx.doi.org/10.2139/ssrn.3185847

Joonhyuk Yang (Contact Author)

Northwestern University, Kellogg School of Management ( email )

Evanston, IL
United States

Eric Anderson

Northwestern University - Department of Marketing ( email )

Kellogg School of Management
2001 Sheridan Rd.
Evanston, IL 60208
United States

Brett R. Gordon

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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