How Hollywood Survived: Sunk Costs, Market Size and Market Structure, 1948-2018

Abstract

In the late 1940s, the demise of the major Hollywood studios seemed imminent in the light of sharply falling entry costs that coincided with declining cinema attendance, antitrust enforcement, vertical disintegration and increasing protection abroad. Yet, while initially their dominance decreased somewhat, from the mid-1970s it rebounded sharply, as did Hollywood’s global market share. To analyse this resilience, we construct long-run time series for 1948 – 2018 and measure changes in market size, market structure, quality and variety. We find that the real market grew fifteenfold, real production outlays fivefold, concentration ten percent, that variety shrank by thirty percent, and that a competitive escalation game of sunk production outlays, following the ‘bounds approach’ (Sutton, 1998), can account for Hollywood’s survival better than alternative explanations.