Law Commons^™

For a long time, economists have been baffled as to why Hollywood studios continue to produce movies with blockbuster-sized budgets (i.e. movies with budgets over $100 million), when producing those movies expose those studios to considerable economic risk. By explaining the unique economics of the film industry, and the effect of the Paramount (antitrust) rules on film distribution contracts, this article provides an explanation to the puzzle of the blockbuster that is confirmed by recent trends in the film industry. Additionally, by using the film industry as a model, this article also demonstrates how relational contracting can be understood as …