Monday, February 24, 2020

Estimating the Costs of Standardization: Evidence from the Movie Industry

El Hadi Caoui, University of Toronto - Rotman School of Management is Estimating the Costs of Standardization: Evidence from the Movie Industry.

ABSTRACT: This paper studies the decentralized adoption of a technology standard when network effects are present. If the new standard is incompatible with the current installed base, adoption may be inefficiently delayed. I quantify the magnitude of "excess inertia" in the switch of the movie distribution and exhibition industries from 35mm film to digital. I specify and estimate a dynamic game of digital hardware adoption by theaters and digital movies supply by distributors. Counterfactual simulations establish that excess inertia reduces surplus by 19% relative to the first-best adoption path; network externalities explain 29% of the surplus loss.

https://lawprofessors.typepad.com/antitrustprof_blog/2020/02/estimating-the-costs-of-standardization-evidence-from-the-movie-industry.html

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