The Impact of Bundling on Product Variety: Evidence from the Paramount Antitrust Case of 1948

Abstract: In this paper, I use the exogenous change in contractual practices in the US motion picture industry due to the Paramount antitrust case of 1948 to empirically test whether theaters changed the type and portfolio of movies showed in their screens after the Supreme Court resolution and measure the impact of bundling on product variety. For this purpose, I use a new data set collected from old Variety issues between 1945 and 1955. This data set provides weekly movie theater information for an unbalanced sample of 393 movie theaters located in 26 different cities in the US. I find that movie theaters previously owned by major studios change their movie portfolios toward movies of other studios, but there was no change in behavior of independent theaters. I also show that the number of movies screened per theater increased after 1949 suggesting a potential increase in efficiency due to the ban of bundling practices.