Using Revenue Sharing to Implement Flexible Prices: Evidence from Movie Exhibition Contracts

Abstract

Movie exhibition contracts entail revenue-sharing terms that go down with weeks since release. We develop a simple model to show how the form of these contracts can be explained by the distributors' desire to set flexible prices. We then use detailed data on theater-movie contracts in Spain, where we exploit the information available at the time of contracting for movies previously released in the U.S., and other movie and theater characteristics, to show how the implications of our flexible pricing argument are supported in the data, and differentiate our explanation from prior, more standard risk-sharing and moral-hazard explanations. © 2012 Blackwell Publishing Ltd and the Editorial Board of The Journal of Industrial Economics.