Does Vertical Integration Spur Investment? Casting Actors to Discover Stars during the Hollywood Studio Era

F. Andrew Hanssen () and Alexander Raskovich

Journal of Law and Economics, 2020, vol. 63, issue 4, 631 - 666

Abstract: The Hollywood studio era of the 1930s and 1940s was remarkable for its abundance of glamorous stars. In this paper, we investigate whether the vertical structure of the Hollywood studios, by ensuring studios’ claims to “star capital,” spurred higher levels of investment in discovering stars than was (or is) achievable under alternate regimes (such as today’s film-by-film contracting). The vertical structure consisted of backward integration into talent through long-term contracts and forward integration into exhibition through ownership of theater chains. The investment involved the experimental casting of novice actors to gauge audience appeal. Collecting data on thousands of actors whose careers span nearly three-quarters of a century and conducting several sets of tests, we find evidence of higher levels of investment in actors working under the vertical structure of the studio era than in actors working under alternate regimes.

Date: 2020
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