Abstract.
We study a parsimonious competition setting whereby studio producers invest in production costs and advertising when launching their new movies. Using an agent-based model, we test strategies based on three realistic decision rules: the release rule, which specifies either a wide release or a platform release, the imitation rule, in which studios can copy each other, and the trend rule, that allows firms to follow a recent profitable trend. We also rely on a game-theoretical model that provides a fully rational benchmark for our simulation results. We obtain several interesting results. Quite surprisingly, our formal equilibrium analysis suggests that when the studios place their movies away from the center of the target segment, i.e. their movies move away from the mainstream, studios invest the same in production costs, spend more on pre-launch advertising campaigns and profit less. The ABM supports and extends these findings. Among the realistic decision rules only the trend rule performs largely better than the equilibrium benchmark. When studios follow this decision rule they end up spending even more in ad expenditures. Moreover, our ABM results indicate that strategies based on the wide releases also tend to increase ad expenditures when the movies differentiate. Our analysis provides managerial insights for the launch of new movies.