“Strategic Advertising and Release in the Movie Industry ” by Miss Weichen YAN
Miss Weichen YAN
Ph.D. Candidate in Economics
Graduate School of Arts and Science
New York University
Setting the release date and advertising for a blockbuster movie are the most important decisions a studio makes in movie distribution. I propose a model which combines studios’ release date (entry) and advertising choices under incomplete information. Studios optimize by setting release dates followed by advertising budget, and have payoffs structurally determined and dependent on demand. I adopt an estimation method which accounts for advertising and choice set endogeneities, the latter leading to a selection bias if not corrected. Model estimates, in particular the effect of advertising, are significantly different from the traditional estimates. I show that ignoring advertising and/or choice set endogeneity significantly underestimates the impact of advertising on box office. In light of the recent Disney- Fox merger, I simulate how this event will impact the movie industry.