ABSTRACT
IN THE EARLY FILM INDUSTRY, FILM technology automated and standardised live entertainment and made it tradeable, thus leading to a process of market integration, which was reaching its heights during the 1910s, when features made cinema an ever better substitute. 1 Many of the lower-value-added local entertainments were now replaced by entertainment produced in one location in the nation and distributed nationwide. Second, a basic network of fixed cinemas, an essential distribution delivery system, was more or less complete by the early 1910s, guaranteeing a large potential market. Third, consumer demand for entertainment increased substantially between the 1900s and the 1920s. Finally, before 1913, the MPPC [Motion Picture Patents Company] companies had formed a cartel and effectively limited each others’ expenditure on film production, leading to an artificial constraint on the R&D/sales ratio. When the federal government started to prosecute the MPPC in 1912, its power quickly diminished, and many rival companies were formed. Firms do R&D to improve their products’ quality and steal market share away from competitors. Under the cartel, this incentive to do R&D was absent, and as a consequence, when the cartel collapsed a further reason for escalating R&D emerged.
