Digitization and Flexibility: Evidence from the South Korean Movie Market

We examine the transition from 35mm film to digital cinema technologies in the South Korean movie industry. Using detailed data on theaters' daily scheduling decisions, we assess the effects of digitization on theaters' assortment decisions between 2006-16. We show that digitization helps theaters provide consumers with more product variety, through greater scheduling flexibility, but it also leads theaters to disproportionately concentrate the supply of screens towards the top movie. We develop a theoretical model to show that the change in product variety and supply concentration is moderated by demand fluctuations, and test these predictions by exploiting within-week variation in movie demand. As predicted, the impact of digitization on product variety and supply concentration varies by weekend evening (i.e., peak demand) vs. other time slots. The increase in supply concentration is limited to weekend evening time slots. In other time slots, there is a decrease in supply concentration. Product variety increases in all time slots except for weekend evenings.