Business strategies, government policy and the European film market during the interwar period: an economic-historical perspectiveThis paper identifies four basic economic characteristics underlying the evolution of the motion picture industry. First, the importance of endogenous sunk costs led to a quality race in the 1910s that left European companies behind. Second, the fact that marginal revenues equalled marginal profits led to extreme vertical integration. Third, a public-good characteristic of motion pictures - non-diminishability - led to a skewed income distribution among talent, with a few superstars taking most pay, although the Hollywood studios mitigated this with seven-year contracts. Fourth, the project-based nature of film production yielded large intra- and inter-industry agglomeration benefits, leading to geographical concentration. In reaction to this changing economic environment European firms formed alliances - eventually thwarted by the rise of protection and fascism - and focused on highly differentiated films. Policy makers reacted with protectionist legislation that offered European consumers more variety at the expense of quality; provided a countervailing power to the colluding Hollywood studios at the expense of increased national resources used in film production; enabled an improved balance of payment at the expense of trade friction with the u.s.; and created national agglomeration benefits possibly at the expense of other or new creative industries.

Netherlands Institute for Sound and Vision
Tijdschrift voor Mediageschiedenis
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TMG Journal for Media History; Vol 13, No 2 (2010): Het filmbedrijf en de markt; 13-36

Bakker, Gerben. (2010). Bedrijfsstrategieën, overheidsbeleid en de Europese filmmarkt tijdens het Interbellum. Een economisch-historisch perspectief. Tijdschrift voor Mediageschiedenis, 13(2), 13–36. doi:10.18146/tmg.576