| The first chapter provides an introduction to the dissertation. In the second chapter, I investigate the importance of measurement error and omitted variables bias in estimating the demand for motion pictures. I find that current methods of calculating quantities overstate the price elasticity of demand, while failing to account for unobserved theater quality and the number of showtimes understates it. I conclude that, due to industry practices, there is inadequate firm-level price variation to find significant negative demand elasticity.; In the third chapter, I examine theaters' capacity allocation decisions across different movies. It is often difficult for economists to evaluate the optimality of firms' capacity allocations, since they must determine the price elasticity of demand and observe marginal cost for each product. The movie exhibition industry provides an ideal backdrop for testing the theory of capacity allocation, since theaters charge the same price for every movie and change capacities weekly. I develop a model of demand and supply for movies where the demand for a movie is partly a function of the capacity allocated to the movie. Using ten months of ticket quantities, marginal costs, concessions costs and revenues, I estimate demand and simulate optimal capacities. I find that demand for movies is indeed capacity dependent, and that movie theaters could improve profits by 7--15% through better utilization of their capacity. While the analysis focuses on the movie exhibition industry, the modeling strategy employed has implications for other industries where demand can be viewed as capacity-dependent.; In the fourth chapter, co-authored with Darren Filson and Portia Besocke, we examine the assumption of asymmetric information as a basis for profit-sharing contracts. We discuss a real-world profit-sharing contract, the movie exhibition contract, and find that two explanations based on difficulties with forecasting fit the facts better than asymmetric information models. The first emphasizes two-sided risk aversion; the second emphasizes measurement costs. Transaction costs and long-term relationships also affect contractual practices. We use an original data set of all exhibition contracts involving thirteen theaters owned by a prominent St. Louis exhibitor over a two-year period to inform our theories and test hypotheses. |
