The consumption characteristics of film

Film is an example par excellence of a product that is vertically differentiated, in that although each film is unique in some respects in relation to other films, they are not of equal attractiveness to audiences, perhaps because each member of an audience is a unique individual, which results in variations of taste over the ensemble of filmgoers. The industrial economics literature in this area has developed over the past 15 years from the pioneering work of John Sutton, who sought to explain why, in some industries, a continuously expanding market would not cause industrial concentration to decline indefinitely. His answer, simply put, is to be found in the degree to which firms in an industry invest in endogenous sunk costs, such as advertising, and research and development, with the intention of enhancing consumers’ ‘willingness to pay’. Where consumers respond positively to such strategic behaviour there will be a lower bound beyond which industrial concentration will not fall. Indeed, the greater the responsiveness of consumers to this strategic behaviour the more likely it is that there will be an escalation of sunk-cost investment and the ‘higher will be the lower bound to equilibrium levels (of concentration) in the industry’. This paper seeks to show how audiences reacted to the levels of sunk-cost investments in film during the 1930s. The logic of vertical product differentiation is that where prices are invariant between products, as in the case of cinema admission prices, it is possible for a small number of products (sometimes only one) to appear superior in almost all respects to all others, not for just one consumer, but almost all consumers across a variety of