Herfindahl-Hirschman at the Movies (Part 3)

Click here to see Part 2. That was a few days ago. How the Justice Department uses the HHI is given at the end of the post.

Herfindahl–Hirschman Index (HHI): The market share of each firm in an industry is squared and then all those numbers are added up to get the HHI.

Click here to get studio market shares from Box Office Mojo. The graph below shows the HHI for each year from 2000-2018. I included all firms each year which had at least a 0.1% market share.

The vertical axis starts at 800, so it exaggerates the trend a bit. Since the HHI has stayed below 1,500, it is a competitive industry according to the Justice Department. But my last post mentioned that the HHI will go up quite a bit with the Disney-Fox merger (Buena Vista is Disney's distribution company).

The table below shows the market share for the 8 companies that were in the top 15 every year from 2000-2018 (except Fox Searchlight & Lionsgate which just missed the top 15 in the year 2000). Anything less than 1% kept a studio out of the top 15, although less than 1% was sometimes enough. You can see that the market shares do fluctuate for these studios.

Year	20th Century Fox	Buena Vista	Fox Searchlight	Lionsgate	Paramount	Sony/Columbia	Universal	Warner Bros.
2000	9.5	15.5	0.3	0.4	10.4	9	14.1	11.9
2001	10.6	10.9	0.6	0.7	11	9	11.7	15.1
2002	10.1	13	1.4	0.8	7.4	17.2	9.5	11.7
2003	8.4	16.5	1.3	0.6	7.1	13	11.6	12.8
2004	9.9	12.4	1.8	3.2	6.7	14.3	9.5	12.9
2005	15.3	10.4	1.2	3.2	9.4	10.4	11.4	15.6
2006	15.2	16.2	1.8	3.6	10.3	18.6	8.9	11.6
2007	10.5	14	1.4	3.8	15.5	12.9	11.4	14.7
2008	10.5	10.5	2.2	4.5	16.4	13.2	11	18.4
2009	13.1	11.5	2.4	3.8	13.8	13.6	8.3	19.7
2010	13.9	13.6	1.4	4.8	16	12	8.3	18
2011	9.6	12.2	1.5	1.8	19.2	12.5	10.2	17.9
2012	9.2	13.9	1.1	11.1	8.2	16.1	11.9	14.9
2013	9.2	14.9	1	9.3	8.4	9.9	12.4	16.2
2014	16.5	14.9	1.4	6.8	9.7	11.6	10.3	14.4
2015	11.3	19.8	1	5.9	5.9	8.4	21.3	13.9
2016	12.9	26.3	0.5	5.8	7.7	8	12.4	16.7
2017	12	21.8	0.9	8	4.8	9.5	13.8	18.4
2018	9.4	26.3	1.2	3.4	6.2	10.7	15.3	15.5

This chart shows the market share for these firms each year over the period. All the crisscrossing means that they are all going up and down each year.

Notes about other companies:

DreamWorks SKG-Were in the top 15 from 2000-2005 with two years around 10%. But not since 2005.

MGM/UA-In the top 15 from 2000-2009 with a high of 5.5%. Then got back in in 2018 with 1.4%

Miramax-In the top 15 from 2000-2009 with a high of 7.5%. Has not made it since.

New Line-In the top 15 from 2000-2009 with a high of 10.1%. Also made it in 2010 and 2012-2015.

Summit Entertainment-In the top 15 from 2008-2011, getting over 4% three times.

See Horizontal Merger Guidelines.  But here is an excerpt:

"Based on their experience, the Agencies generally classify markets into three types:

• Unconcentrated Markets: HHI below 1500
• Moderately Concentrated Markets: HHI between 1500 and 2500
• Highly Concentrated Markets: HHI above 2500

The Agencies employ the following general standards for the relevant markets they have defined:

• Small Change in Concentration: Mergers involving an increase in the HHI of less than 100 points are unlikely to have adverse competitive effects and ordinarily require no further analysis.
• Unconcentrated Markets: Mergers resulting in unconcentrated markets are unlikely to have adverse competitive effects and ordinarily require no further analysis.
• Moderately Concentrated Markets: Mergers resulting in moderately concentrated markets that involve an increase in the HHI of more than 100 points potentially raise significant competitive concerns and often warrant scrutiny.
• Highly Concentrated Markets: Mergers resulting in highly concentrated markets that involve an increase in the HHI of between 100 points and 200 points potentially raise significant competitive concerns and often warrant scrutiny. Mergers resulting in highly concentrated markets that involve an increase in the HHI of more than 200 points will be presumed to be likely to enhance market power. The presumption may be rebutted by persuasive evidence showing that the merger is unlikely to enhance market power.

The purpose of these thresholds is not to provide a rigid screen to separate competitively benign mergers from anticompetitive ones, although high levels of concentration do raise concerns. Rather, they provide one way to identify some mergers unlikely to raise competitive concerns and some others for which it is particularly important to examine whether other competitive factors confirm, reinforce, or counteract the potentially harmful effects of increased concentration. The higher the post-merger HHI and the increase in the HHI, the greater are the Agencies’ potential competitive concerns and the greater is the likelihood that the Agencies will request additional information to conduct their analysis."

 Related posts:

The Herfindahl-Hirschman Index & The Anheuser-Busch InBev/Grupo Modelo Merger

Is The Airline Industry An Oligopoly? 

How concentrated are U.S. industries?

The Amazon War and the Evolution of Private Law

By Alex Tabarrok of Marginal Revolution. Great post, well worth reading.

It seems like a legal system is developing to handle appeals at Amazon when they think fake product reviews were used. Such sites get banned but you can appeal and lawyers are specializing in this.

Amazon will ban companies with fake reviews. Sounds like a good idea. But that means your competitors can leave fake reviews saying how great your product is. Then Amazon will ban your company.

Sometimes rules give people incentives to game the system and economics is all about incentives.

After a Starbucks opens in town, housing prices tend to rise, Harvard study finds

By Thomas Franck of CNBC. Excerpts:

"Key Points

• A new Harvard Business School paper uses Yelp data to find that the entry of each Starbucks into a ZIP code is associated with a 0.5 percent increase in housing prices within a year.
• “The presence of a Starbucks is far less important than whether the community has people who consume Starbucks,” the paper found.
• The economists say the study is the first of its kind to track gentrification using a platform such as Yelp, a potential new tool for policymakers hoping to monitor housing prices."

"It’s not clear whether housing prices are rising due to the Starbucks opening itself or simply because more affluent customers that would go to the coffee chain have moved into the area.

Harvard economics professor Edward Glaeser said Yelp data reveals it may be the latter. The study found that each 10-unit increase in the number of reviews is associated with a 1.4 percent increase in housing prices in the ZIP code.

“The most natural hypothesis to us is that restaurants respond to exogenous changes in neighborhood composition, not that restaurant availability is driving neighborhood change,” the paper concludes.
This is the broader point of the paper, which surmises that gentrification is “strongly associated” with increases in the numbers of grocery stores, cafes, restaurants and bars."

"What remains uncertain, though, is any idea of causality, Glaeser wrote.

“Yet, it seems true that Yelp establishments from 2007-2011 predict changes in education levels over the next five years, but education from 2007 to 2011 does not predict increases in the number of Yelp establishments, once we control for the initial level of Yelp establishments.”

So Starbucks may not be causing gentrification, but its arrival may confirm the gentrification trend.

“The presence of a Starbucks is far less important than whether the community has people who consume Starbucks,” Glaeser writes in the paper. “Consequently, we think that this variable is likely to be a proxy for gentrification itself.”"

Many economic trends don’t fit with patterns that presaged previous recessions although warning signs can be sudden

See Global Recession Alarms Aren’t Ringing, Despite Market Mayhem: Plenty could still go wrong for the global economy in 2019, but the economic data aren’t saying it has happened yet from Dec. 10 by Paul Hannon of The WSJ. Excerpts:

"Economists at UBS Securities examined 120 recessions in 40 different countries over the past 40 years for clues about how economies behave before recession sets in, for example, what happens to consumer spending, home prices, bank lending, imports, productivity and employment.

“We find that on several dimensions, the behaviour of the data over the last four quarters in the U.S., Eurozone and Japan is completely incongruous with any of the recessions that took place since 1980,” write Pierre Lafourcade and Arend Kapteyn of UBS.

Mr. Kapteyn, in an interview, said the model is consistent with a “sharp slowdown” in global growth, but not the end of the business cycle.

Productivity growth and consumer spending, for example, tend to slow before downturns set in. In the U.S., they’ve picked up. U.S. consumer spending, for example, was up 2.9% in October from a year earlier, adjusted for inflation. That’s better than the average of 2.4% over the past four years. Growth in worker productivity in the second and third quarters was among the best of the expansion."

"Economists at J.P. Morgan have drawn similar conclusions about the growth outlook. They built several alarm systems for impending recessions—one using only high frequency economic data and another including economic data and financial market behavior. The U.S. indicator using only economic data puts a 21% probability on a downturn in the next 12 months, up a bit in recent months but still below levels reached in 2016. The indicator that uses financial market behavior, such as stock price changes and changes in long-term Treasury bond yields, puts the probability at a much higher 36%.

Some economic indicators that presage downturns, such as the change in corporate profit margins, have improved this year rather than deteriorated, said Bruce Kasman, J.P. Morgan’s chief economist.

“We’re in a slowing, there’s no doubt about it, but it doesn’t feel like something fundamentally is breaking down in the underpinnings of the expansion,” Mr. Kasman said in an interview."

See also Recession Is Looming, or Not. Here’s How to Know: Early indicators signal concerns, though more credible ones still look good. But the economy can turn quickly from Dec. 27 by Justin Lahart of The WSJ. Excerpts:

"The early indicators of trouble, such as stock-market selloffs and surveys of sentiment, are imperfect forecasters of a recession."

"Early indicators have more credibility when several of them are flashing warning lights, which is true now.

Besides the stock-market turmoil, short-term Treasury yields are almost as high as long-term yields, closing in on a yield curve “inversion” that in the past has portended recession.

Corporate bond yield spreads over comparable Treasurys are climbing. Business sentiment is slipping, with nearly half of chief financial officers in a recent Duke University survey forecasting a recession by the end of next year."

"The flattening yield curve, for example, could be a result of bond buying by central banks.
But these indicators tend to reinforce one another"

"initial jobless claims, auto sales, industrial production and aggregate hours worked.

Of these, only auto sales, which have leveled off lately, provide any concern."

"Economists as a group may never correctly predict a recession, but the odds they place on one coming tend to rise in advance of a downturn."

"This month, economists surveyed by The Wall Street Journal put a 22% chance of a recession occurring over the next 12 months, compared with 14% a year earlier. Those odds would need to go higher before they amounted to a danger sign."

"Before the fall of 2007, recession indicators like jobless claims suggested nothing was seriously amiss, and then suddenly, they did."

See Inverted Yield Curve by Investopedia. Inverted Yield Curve

Herfindahl-Hirschman at the Movies (Part 2)

Click here to read Part 1. It discusses the possible Disney-Fox merger. Below I talk about merger guidelines and which mergers the government might try to block.

This post deals with market shares of film studios this year. See ‘Black Panther,’ ‘Avengers’ Top Record 2018 Box Office: Hit films generated a disproportionate share of estimated $11.8 billion domestic haul by Erich Schwartzel of The WSJ.

The Justice Department uses the Herfindahl–Hirschman Index (HHI). The market share of each firm in an industry is squared and then all those numbers are added up to get the HHI. There are 3 categories according to Justice:

Unconcentrated Markets: HHI below 1500
Moderately Concentrated Markets: HHI between 1500 and 2500
Highly Concentrated Markets: HHI above 2500

If two firms merge, how likely or unlikely that the merger will be challenged depends on which of the above three categories the industry will be in once the merger takes place and how much the HHI changes as a result of the merger (again, this information is below).

So which one of the three cases above fits the movie industry (at least for 2018)? The WSJ article linked above has market shares. They are

Studio	%Share	Squared
Disney	26	676
Universal	17	289
Warner	15	225
20th/Fox	11	121
Sony	11	121
Paramount	6	36
Total	86	1468

The missing 14% is made up by all the other firms. If that 14% is made up by two firms with 5% each and one with 4% then that would add another 5² + 5² + 4²  =  66. If we add that to 1,468, it puts the HHI over 1,500 (1,534). But if each of the other firms has just 1% each it would only add 14 to the HHI since 1 squared is just 1. That would get us 1,482. So the movie industry is between 1,482 and 1,534). It may be Unconcentrated or Moderately Concentrated.

But even if it is Moderately Concentrate, it would still be on the low end of that category. So it is probably not that threatening to consumers.

Disney and Fox are merging. How much will the HHI increase as a result of that merger? We find that by 2*26*11 = 572. Adding that to either 1,482 or 1,534 would put the HHI over 2,000. What would the Justice Department guidelines say about that? They say that this merger is likely to be challenged.

But it was approved. Disney was required to sell Fox’s regional sports networks because Disney owns ESPN. Of course, that has nothing to do with movies

See Horizontal Merger Guidelines.  But here is an excerpt:

"Based on their experience, the Agencies generally classify markets into three types:

• Unconcentrated Markets: HHI below 1500
• Moderately Concentrated Markets: HHI between 1500 and 2500
• Highly Concentrated Markets: HHI above 2500

The Agencies employ the following general standards for the relevant markets they have defined:

• Small Change in Concentration: Mergers involving an increase in the HHI of less than 100 points are unlikely to have adverse competitive effects and ordinarily require no further analysis.
• Unconcentrated Markets: Mergers resulting in unconcentrated markets are unlikely to have adverse competitive effects and ordinarily require no further analysis.
• Moderately Concentrated Markets: Mergers resulting in moderately concentrated markets that involve an increase in the HHI of more than 100 points potentially raise significant competitive concerns and often warrant scrutiny.
• Highly Concentrated Markets: Mergers resulting in highly concentrated markets that involve an increase in the HHI of between 100 points and 200 points potentially raise significant competitive concerns and often warrant scrutiny. Mergers resulting in highly concentrated markets that involve an increase in the HHI of more than 200 points will be presumed to be likely to enhance market power. The presumption may be rebutted by persuasive evidence showing that the merger is unlikely to enhance market power.

The purpose of these thresholds is not to provide a rigid screen to separate competitively benign mergers from anticompetitive ones, although high levels of concentration do raise concerns. Rather, they provide one way to identify some mergers unlikely to raise competitive concerns and some others for which it is particularly important to examine whether other competitive factors confirm, reinforce, or counteract the potentially harmful effects of increased concentration. The higher the post-merger HHI and the increase in the HHI, the greater are the Agencies’ potential competitive concerns and the greater is the likelihood that the Agencies will request additional information to conduct their analysis."

 Related posts:

The Herfindahl-Hirschman Index & The Anheuser-Busch InBev/Grupo Modelo Merger

Is The Airline Industry An Oligopoly? 

How concentrated are U.S. industries?

Check Clearing for the 21st Century Act (Check 21)

See Check Services from The Federal Reserve.

"The Federal Reserve Banks provide check collection services to depository institutions. When a depository institution receives deposits of checks drawn on other institutions, it may send the checks for collection to those institutions directly, deliver them to the institutions through a local clearinghouse exchange, or use the check-collection services of a correspondent institution or a Federal Reserve Bank. For checks collected through the Federal Reserve Banks, the accounts of the collecting institutions are credited for the value of the checks deposited for collection and the accounts of the paying banks are debited for the value of checks presented for payment. Most checks are collected and settled within one business day.

The number of checks written nationally has been declining since the mid-1990s as the use of electronic payment instruments has grown. In addition, the Check Clearing for the 21st Century Act (Check 21) removed barriers to the electronic collection of checks and electronic check collection has now become the primary method for collecting checks. Indeed, almost all checks processed by the Reserve Banks today are deposited and presented using the Reserve Banks' electronic check collection services. These changes have enabled the Reserve Banks to reduce their national check-processing infrastructure so that, since early 2010, they have been processing paper checks at one location nationwide, down from 45 in 2003.

Further information on Federal Reserve check services"

Broncos to debut beer-pouring robot at upcoming game

By Matt Birch of The Sports Daily. They have a short video showing how it works. Excerpt:

"Apparently, the team will be using a robot known as the Bud Light Bot to pour beer for fans located in the stadium’s United Club East level. The robot will pick up the cup and hold it over a bottoms-up machine that will dispense the beer"

In my macroeconomics class, we talk about the types of unemployment. Here is one of them:

Structural-unemployment caused by a mismatch between the skills of job seekers and the requirements of available jobs. One example of this is when you are replaced by a machine.

Related posts:

Robot Journalists-A Case Of Structural Unemployment?

Structural Unemployment In The News-Computers Can Now Tell Jokes 

WHAT do you get when you cross a fragrance with an actor?

Answer: a smell Gibson.

Robot jockeys in camel races

Are Computer Programs Replacing Journalists?

Automation Can Actually Create More Jobs 

The Robots Are Coming And It Might Not Be A Case of Structural Unemployment