Department of Economics

Government Intervention to Prevent Bankruptcy: the Effect of Blind-Bidding Laws on Movie Theaters

Department of Economics
University of Delaware
Working Paper #2012-03

Government Intervention to Prevent Bankruptcy: the Effect of Blind-Bidding Laws on Movie Theaters

James G. Mulligan and Daniel J. Wedzielewski

ABSTRACT

In the 1970s motion picture studios increased their use of blind bidding and non-refundable guarantees in an attempt to reduce the risks associated with producing a small number of large budget films.  However, theater owners claimed that blind bidding and guarantees shifted risk to them and increased the likelihood of bankruptcy, since they were required to bid for the right to exhibit a movie without seeing it first.  In response to the lobbying of theater owners, twenty-four states passed laws between 1978 and 1984 that banned blind bidding, while seven states also banned non-refundable guarantees.  This paper provides the first empirical analysis of the conflicting claims made by theater owners and movie studios about the impact of these laws on the survival rates of independent theaters, admission prices, and delays in the release of movies.  We find that the laws were not only ineffective in keeping theater owners at risk of bankruptcy from exiting the market; they may have been even detrimental to those theater owners converting theaters to multiplexes at that time.

The Lerner College is home to a state-of-the-art financial trading facility, the $1.4 million student-led Blue Hen Investment Fund, a student-managed restaurant and hotel, a high-technology development center of a global bank and a start-up experience for students with new business ideas.

Lerner College faculty - like Anu Sivaraman, who is among Social Media Marketing Magazine’s “Top 100 Marketing Professors on Twitter” and MBAprograms.org’s “Top 50 Marketing Professors on Twitter” - are thought leaders who command attention from influential business audiences, economists and policy makers.

All Lerner College departments offer experience-driven learning and emphasize evidence-based analytics methods to enrich the student experience. Here, finance students visit New York City’s financial districts for a first-hand look at markets trading and to meet with UD alumni.

Charles W. Horn, AS75, and wife Patricia, recently made a $3 million commitment to enhance and expand entrepreneurial studies.

  • Alfred Lerner College of Business & Economics
    303 Alfred Lerner Hall  •  Newark, DE 19716  •  USA  •  ©