Competition and product composition: Evidence from hollywood

Abstract

We examine how competition affects the number and composition of product offerings. The question is addressed using the example of the U.S. motion picture industry, which has experienced declining attendance in the past decade due to competition from streaming services and smart phone applications. Using data on 1486 releases between 2009 and 2018, we estimate a structural model of endogenous product choice in which studios allocate a fixed budget to low-, medium-, and high-budget movie projects each year. A counterfactual exercise in which we assume that the number of Netflix streaming subscribers remains at its 2011 level reveals a significant increase in the number of medium-budget movies but little change in the number of low- and high-budget movies. Additional counterfactual exercises that simulate a change in the number of competing firms, such as a merger between two studios and the entry of a new studio, confirm the existence of an inverse relationship between competition and the number of medium-budget movies.