Joel Waldfogel, University of Minnesota, Carlson School of Management
Joel Waldfogel, University of Minnesota, Carlson School of Management
Preference Externalities and the Rise of China: Measuring their Impact on Consumers and Producers in Global Film Markets
Preference Externalities and the Rise of China: Measuring their Impact on Consumers and Producers in Global Film Markets
Preference Externalities and the Rise of China: Measuring their Impact on Consumers and Producers in Global Film Markets
Fernando Ferreira
Amil Petrin
Joel Waldfogel
The preference composition of world movie audiences has changed rapidly over the past few years. China reached half the US total movie revenues in 2014, a tenfold increase since 2008, even as China continued restricting imports. This paper investigates the differential impact of the rise of China on world movie consumers and producers. Using data on box office revenue in 52 countries, along with information on movies’ national origins, we first show that, in general, consumers disproportionately prefer domestic as well as US-origin movies. We then develop a structural framework consisting of a flexible nested logit demand model, along with a supply model relating movie production budgets to the appeal of movies to consumers. We characterize equilibrium via a country-level Nash equilibrium in investment. We use the model to investigate two counterfactuals. First, relative to autarky, current movie trade patterns raise revenue of US producers while reducing revenue of other countries, and trade benefits consumers everywhere. Because US consumers import little, the benefit they experience from trade operate through investment. Second, additional Chinese liberalization would raise consumer surplus in both China and, because of increased investment in some countries, elsewhere as well. But preference externalities would lead to a differential effect on firm investments and movie revenues: the US, other Anglophone countries and Asia would invest more, causing the movie industry in Europe to generate less revenue due to the higher quality competition arising from the other locations.