Estimating a War of Attrition: The Case of the US Movie Theater Industry

Abstract

This paper provides a tractable empirical framework to analyze …rm behavior in a dynamic oligopoly when demand is declining over time. I modify Fudenberg and Tirole (1986)'s model of exit in a duopoly with incomplete information to a model that can be used in an oligopoly, and combine this with an auxiliary entry model to address the initial conditions problem. I estimate this model with panel data on the U.S. movie theater industry from 1949 to 1955, using variations in TV di¤usion rates across households, market structure before the exit game starts, and other market characteristics to identify the parameters in the theater's payo¤ function and the distribution of unobservable …xed costs. Using the estimated model, I measure strategic delays in the exit process due to oligopolistic competition and incomplete information. The delay in exit that arises from strategic interaction is 2.7 years on average. Out of these years, 3.7% of this delay is accounted for by incomplete information, while the remaining 96.3% is explained by oligopolistic competition.

Entry Regulations, Welfare, and Determinants of Market Structure

“…Although we add various market controls when computing variable profits using a discrete choice demand system, it is difficult to control for the possible presence of serially correlated unobservables in our dynamic framework. See Takahashi () for a dynamic model of exit that controls for correlated unobservables.…”

Does Television Entry Decrease the Number of Movie Theaters?

“…We are also able to include number of theater and screens, yearly attendance, and box but understandably only refers to the coefficients as associations and correlations. This is the case for example in Takahashi (2015) in American Economic Review where the estimates recover the expected negative coefficient in movie theaters' profits but the text does not claim causation because of the reasons outlined here.…”

War and conflict in economics: Theories, applications, and recent trends

“…Much recent work employing dynamic contest models attempts to account for the empirical observation that there are many persistent intergroup conflicts (e.g., Baliga et al, 2011;Rohner et al, 2013;Acemoglu and Wolitzky, 2014;Gul and Pesendorfer, 2012), and this growing theoretical literature has been complemented by observational studies testing competing explanations of conflict persistence (e.g., Augenblick, 2016;Takahashi, 2015).…”