The dynamics of the movie industry: Theatrical exhibitions and DVD rentals

Movie distributors usually release their movies in theaters first and then distribute them in the video/DVD rental market. Depending on tastes, some consumers choose to watch a movie in the theater but others choose to rent the movie later. I examine this phenomenon with a structural econometric framework which properly addresses the underlying behavior of consumers and distributors in the U.S. movie industry.; In the first chapter, I take a general view of the industry and describe the data. Then, I conduct a preliminary empirical analysis which motivates the structural analysis contained in subsequent chapters.; In the second chapter, I investigate the driving force that determines the dynamic allocation of movie demand. Typically, the theatrical demand for a movie reaches its highest point in the first couple of weeks and then declines rapidly. We observe the same demand pat tern when its rental title is released several months after the theatrical exhibition ends. As opposed to the previous literature which explains these patterns with the time-depreciation of movies' attractiveness, I find empirical evidence that they result from the dynamic selection of consumers. This evidence implies that the 'theater-to-video window' (i.e., the time lag between the theatrical release and the rental release) is the distributor's device for discriminating consumers and hence has important economic implications. I confirm the discrimination with theater-to-video windows by conducting a counterfactual experiment. The dynamic consumer selection makes consumer distribution change over time endogenously. Thus, it hampers the direct application of the standard techniques for estimating demand with product-level data. I develop a new structural demand model which nests consumers' optimal stopping decisions into the Berry, Levinshon, and Pakes (1995)-style technique.; In the third chapter, I examine movie distributors' window setting behaviors. Movie distributors who sequentially release movies in theaters and in rentals face the 'time-consistency problem' of a durable good. Moreover, the multiplicity of distributors causes the distributors to interact strategically surrounding the problem. I implement a simple empirical analysis to find how distributors determine the length of video windows and then suggest a structural econometric model, which accounts for the theoretical issues and the empirical findings.