World Media Economics and Management Conference 2016

This paper presents a three equation empirical model of trade in motion pictures that is used to test predictions derived from the standard microeconomic model of trade in media products and Krugman’s (1979, 1980) more general model in of intra-industry trade in differentiated products. It is shown that the microeconomic media trade model implied that a larger domestic market may contribute to greater success in exporting media products by encouraging production of larger budget products and by stimulating the production of more media products. The second effect is similar to the predictions of the Krugman model. Estimates for the three-equation model strongly support the existence of a large market effect operating through increased film budgets, but does not provide support for an effect operating through increased domestic film production. It is suggested that market size may affect numbers of domestically produced films through a more indirect path.