Blind Bids in the Film Industry
https://www.jstor.org/stable/1928302
“Blind Bidding for Motion Pictures” by Martha A. Blumenthal
Blind bidding has been a source of controversy in the film industry, causing movie exhibitors (theater owners) to seek legislation requiring distributors (sellers) to pre-screen films before auctions. Nash equilibrium simulations suggest that distributors may experience losses without previews. In many auctions, buyers are unaware of the true value of the item for which they are bidding. There are many variables, such as racehorses or pieces of artwork, and the film industry is no different. Audience demand cannot be known and the value of a film is a random event. In a lot of states, distributors can hold auctions before the production has begun, using this as a tool to finance the film. As a result, a few states have legally required previews, and many blame the aforementioned policy for the bankruptcy of several theaters.
According to author Marsha A. Blumenthal, “if the market for film licenses were competitive with many buyers and sellers, then blind bidding might be pareto-superior to a preview regime.” The film inventory costs are probably lower under blind than under preview bidding and exhibitors would be no worse-off under blind bidding while distributors would strictly prefer it. The market for first-run motion picture licenses is not perfectly competitive, as there are only a few buyers and sellers, the product is not homogenous, and strategic behavior can affect price. Much literature confirms that buyers in uncertain of the value of a price will reduce their bids. Blumenthal’s statistical analysis indicates that exhibitors are risk-averse, causing them to lower their bids in blind auctions, raising their return. However, a decline in expected utility might drive rational exhibitors to seek legislation.
This article applies auction strategy to film licensing by distributors and exhibitors. This has a greater social impact because it has implications for media produced and who can produce them. As a result of the above-mentioned policies, theater owners have continued to exit the market. This issue has shaped the way we experience entertainment today. Furthermore, films are still made through a bidding process. I thought this was interesting because this reading directly applies our topic of game theory, markets, and auctions. It speaks about the variety of impacts of different auction structures have on film distributors and exhibitors and analyzes these for a pareto-optimal outcome. This is an outcome, or choice of strategies, that most benefits all players. The author concluded that the blind bidding would be the superior choice. I selected this article because it directly applied topics covered in class to an industry that I am passionate about. It also illustrated the concepts in a clear way that was easy to understand.