Digitization and Distribution: The Ends Against the Middle
Digitization has led to dramatic cost reductions, reshaping both what and how products are sold. This paper examines the impact of digitization on the behavior of intermediaries that bring together producers and consumers. We use a novel dataset from the South Korean movie market, which experienced a massive digitization-driven cost shock as the industry moved from 35mm film to digital cinema technologies. This shift to digital reduced distribution costs and enabled theaters to fill screen capacity flexibly. Using two quasi-experimental analyses, we show that while digitization enables market intermediaries such as theaters to provide consumers with increased product variety, it also motivates them to disproportionately pursue blockbusters. Consequently, relatively fewer products achieve modest levels of success in distribution---such products are either less frequent or have become observationally equivalent to low-popularity products.
Gordon, Brett. 2018. Digitization and Distribution: The Ends Against the Middle.