Entry and Competition: Evidence from the Brazilian Movie Exhibition Industry

Abstract

This paper utilizes the substantial and rapid increase in the number of Brazilian theater screens experienced between 2002 and 2005 to empirically examine how entry reshapes the competitive landscape. Using a large database containing daily information on box office performance and attendance by movie and screen I study how the entry of new screens affects revenues, attendance, and tickets prices at incumbent screens, and whether or not the effects of screen entry from the same chain are equal to those of competing chains. By including weekly-varying movie fixed effects in the regressions in order to account for unobserved time-varying movie quality, this paper develops an estimation scheme that allows characterizing the nature of business stealing according to the collection of movies exhibited by incumbents and entrants. I examine both: (i) whether or not entrants push incumbents into showing movies with lower potential at the box office, and to what extent a reduction in the quality of incumbents’ product offerings due to entry explains a decline in their amount of business, and (ii) whether the effects of entry on incumbents’ residual demands are similar when incumbents and entrants show identical or different movies. By aggregating the data at the city level this paper also studies the effects of entry on both market expansion and local movie variety.