Spatial Competition and Demand: An Application to Motion Pictures

This paper provides a rich assessment of the demand characteristics for movie theatre attendance in two major metropolitan markets and provides strong support for the importance of spatial characteristics in empirical demand analysis. We provide evidence of the usual competitive effect of location on an exhibitor’s demand but also find evidence of a clustering effect: when a group of theatres is in close proximity to each other, their proximity generates additional demand for all theatres within the cluster. The demographic evidence suggests that movie attendance is a normal good but does not support the commonly held industry view that young male viewers drive demand. Finally, we show that attendance at a particular theatre is affected by both the theatre’s attributes and the attributes of nearby competing theatres. The attributes we include cover physical features and theatre type.