We use a set of German micro data to study the relationship between mainstream and art house movie theaters. We find that both types of cinema have a significant price effect within their own group, but there is no significant price effect between the two types. Furthermore, we provide an example for the biased results that occur, if both types of movie theaters are pooled into one regression. Doing so, we demonstrate that it is important, to carefully distinguish mainstream and art house facilities in empirical studies of the movie theater industry.substitutability; complementarity; movie theater industry; Germany

Christopher Müller

Enrico Böhme

English

Research Papers in Economics

     
 
 
  
  
Volume 31, Issue 1 
  
A note on the relationship of mainstream and art house movie theaters 
  
 
 
Christopher Müller  
Department of Economics, Johann Wolfgang Goethe-
University 
Enrico Böhme  
Department of Economics, Johann Wolfgang Goethe-
University
Abstract 
We use a set of German micro data to study the relationship between mainstream and art house movie theaters. We 
find that both types of cinema have a significant price effect within their own group, but there is no significant price 
effect between the two types. Furthermore, we provide an example for the biased results that occur, if both types of 
movie theaters are pooled into one regression. Doing so, we demonstrate that it is important, to carefully distinguish 
mainstream and art house facilities in empirical studies of the movie theater industry.
We gratefully acknowledge the support of the student assistants of the Chair of Public Finance Britta Clausen, Max Pachali, and Kerstin Zang, 
who helped us collecting the data. The usual disclaimer applies. 
Citation: Christopher Müller and Enrico Böhme, (2011) ''A note on the relationship of mainstream and art house movie theaters'', Economics 
Bulletin, Vol. 31 no.1 pp. 29-34. 
Submitted: Jul 20 2010.   Published: January 04, 2011. 
 
     1. Introduction 
 
When  studying  a  goods  market,  it  is  often  not  clear  what  constitutes  a  substitute  or 
complement  to  a  specific  product. In  case  of  the  movie  theater  industry,  most  empirical 
literature controls for substitutes by including variables for the diffusion of television and 
VCR sets (see e.g. Cameron 1986, Dewenter and Westermann 2005, Fernández Blanco and 
Baños Pino 1997, and Macmillan and Smith 2001). Very little attention, however, has so far 
been given to the fact that “the movie theater experience” is not a homogeneous good itself. 
Some movie theaters play mainstream (or “major”) movies, while others play art house (or 
“independent”) movies, i.e. movie theaters are either specialized in the one or the other. From 
a theoretical point of view, these two kinds of movie theaters might produce either substitutes 
or complements. 
If consumers choose a movie from the “menu” after deciding for a theater, then art houses 
will be a substitute for mainstream facilities and both types of movie theaters will compete 
for audience. In the case that moviegoers first choose the movie they want to see and then 
browse for locations that play this movie, art house programming enriches the portfolio of 
available movies. Given consumers have Dixit-Stiglitz-type preferences (Dixit and Stiglitz 
1977), that is, if consumers intrinsically value variety, both types of movie theaters benefit 
from each other, i.e. they are complements. Eliashberg (2005) gives anecdotal evidence that 
“movie first, then theater” as well as “theater first, then movie” might describe consumer 
behavior in practice. 
Although  not  explicitly  discussed  in  the  literature,  a  third  and  often  implicitly  assumed 
possibility  is  that  “the  mainstream  movie  theater  experience”  and  “the  art  house  movie 
theater experience“ are independent goods. The market for the one does not affect the market 
for the other. This might also be the case, if mainstream and art house moviegoers are two 
distinct  groups  of  individuals  with  negligible  intersection.  For  instance,  mainstream 
moviegoers might just be “average people”, while art houses might appeal to a bohemian 
walk  of  life.  In  this  case,  the  presence  of  the  one  type  of  movie  theater  will  have  no 
implication for the other. Empirically this case is supported by Gemser et al. (2007), who 
study the impact of reviews on the success of movies. They find that art house moviegoers 
are led by reviews when making their movie choice, while mainstream moviegoers are not. 
The determinants of decision making being different might be seen as a hint on different 
groups  of  individuals  or  homogeneous  individuals  making  two  separate  decisions  on 
independent  goods,  because  otherwise  the  individual’s  decision  making  would  be 
inconsistent. 
 
To our knowledge, no empirical study explicitly addresses the relationship of mainstream and 
art house movie theaters. Coming most closely, Davis (2005) distinguishes “first run” and 
“second run” locations in his study in the US movie theater industry to take account of the 
different pricing schemes.
1 However, Davis (2005) pools art house and mainstream facilities 
within his set of second run locations, so the relationship of art house and mainstream movie 
theaters cannot be read from his paper.  
                                                 
1 In Germany the revenue share usually ranges from approximately 38% to 53%, and is fix over time. This is 
a major difference to the US movie theater industry, where shares are declining over time starting with 
some 90% of box office revenues being passed to the distributor for newly released movies (Filson et al. 
2005). In addition, movie distributors in Germany might charge a limit price that can be considered to be 
non-binding, since limit prices of about 2 to 3 Euro are common. Unlike in the US, movie distributors do 
not influence the exhibitor’s price setting behavior (see Kinowelt 2007), which would be an illegal form of 
vertical integration. In this paper we use a set of German micro data to study the relationship of these two variants 
of “the movie theater experience”. Our aim is to find out whether mainstream and art house 
facilities offer substitutes, complements, or independent goods. The following section will 
briefly describe the data set. Thereafter we will provide our regression specifications and 
results. 
 
2. The Data
2 
 
The data set consists of 183 mainstream and art house movie theater locations in 64 German 
cities,  compiled  in  January  2010.  Each  observation  contains  cross-sectional  information 
about the location’s programming, number of seats, admission price for a regular seat on a 
Saturday  8  p.m.  show,  control  variables  for  the  local  market,  and  the  number  of  seats 
available at other movie theaters in up to 20 km linear distance. The latter are categorized by 
ownership (same or rival operator) and programming.
3 
As there seems to be no generally accepted definition of “mainstream” and “art house” (see 
e.g. Gemser et al. 2007 for a brief overview of definitions applied in the literature), we draw 
the following distinction: If a movie theater runs at least two out of the following four up-to-
date  blockbusters  that  are  on  the  program  of  all  major  German  chains,  it  is  labeled  as 
mainstream (date of first run in Germany in parentheses): Avatar (Dec. 2009), Haben Sie das 
von den Morgans gehört? (Did You Hear About the Morgans?; Jan. 2010), Zweiohrküken 
(Dec. 2009), and New Moon (Nov. 2009). As mentioned in the introduction, movie theaters 
have  a  clear  profile,  being  either  art  house  or  mainstream  facilities.  This  definition  has 
therefore enabled us to classify each observed location without a doubt.  
The data set also provides information about the movie theater operator’s profit-orientation. 
While all mainstream facilities are profit-oriented, roughly 30% of the art house facilities are 
not-for-profit organizations. This can easily be seen by the legal form of the operator, since 
German law clearly defines which legal forms are for profit and which ones are not. Due to 
different treatment in taxation, tax authorities do not tolerate an inappropriate legal form, so 
that we can assume the legal form to give us reliable information about profit-orientation. 
Table I shows some descriptive statistics. 
 
Table I: Descriptive statistics of the data set (standard deviation in parentheses) 
  Mean 
Admission 
Price (€) 
Mean Capacity 
(Seats) 
Share of Not-
for-Profit 
Number of 
Observations 
Mainstream 
Art House, for-
Profit 
Art House, 
Not-for-Profit 
Art House, 
Pooled 
Total 
7.20 (0.85) 
6.57 (0.94) 
 
5.65 (0.99) 
 
6.31 (1.03) 
 
6.86 (1.02) 
1391 (802) 
350 (248) 
 
145 (98) 
 
292 (235) 
 
970 (839) 
- 
- 
 
- 
 
28.57% 
 
10.93% 
113 
50 
 
20 
 
70 
 
183 
 
                                                 
2 For a general description of the German movie theater industry see the statistical yearbooks by Berauer 
(2008) or the overview in Dewenter and Westermann (2005). 
3 Literature proposes some other categories that we are not able to distinguish, because we would obtain many 
categories with only a small number (< 5) of non-zero observations. For instance, Davis (2005) uses 15 
distance categories.  
3. Empirical Analysis 
 
In  this  section,  we  present  the  regression  model  and  the  results.  Our  model  follows  the 
standard OLS scheme and can be denoted as 
  
pi =  0 +  Xi +  CAPi + i, 
where pi is the admission price of cinema i and β0 is a constant.
4 Xi is a vector of control 
variables, consisting of the number of inhabitants (INHAB) and per-capita income (INC) in 
the local area, a dummy taking the value “1” for art house programming of location i (ART) 
and a dummy taking the value “1” for not-for-profit operators (NONPROFIT), with a vector 
β of coefficients. CAPi is a vector of capacities available at other locations within the same 
local  area  of  location  i  with  a  vector  γ  of  coefficients.  Capacities  are  categorized  by 
ownership and programming, where the  shortcut own represents the same operator, rival 
represents  other  operators,  ms  represents  mainstream,  and  ah  represents  art  house 
programming. For instance, the variable CAP_ms_owni represents the number of seats in 
other mainstream theater locations owned by the same operator as cinema i. 
 
Table II: Regression results with pooled distance categories (standard deviation in 
parentheses) 
Variable  Total  Mainstream Only
x  Art House Only 
Constant 
 
ART 
 
NONPROFIT 
 
INHAB 
 
INC 
 
CAP_ms_own 
 
CAP_ms_rival 
 
CAP_ah_own 
 
CAP_ah_rival 
 
 
Adjusted R
2 
 
Breusch-Pagan Test 
(p-Value) 
RESET (p-Value) 
6.329*** 
(0.5810) 
-0.5496** 
(0.1944) 
-0.7543** 
(0.2305) 
3.368e-06*** 
(9.701e-07) 
4.336e-05 
(3.332e-05) 
-1.324e-04 
(1.237e-04) 
-2.945e-04*** 
(6.716e-05) 
1.932e-04 
(1.806e-04) 
-2.219e-04*** 
(6.376e-05) 
 
0.3175 
 
0.3871 
 
0.9852 
7.2071*** 
(0.4795) 
- 
 
- 
 
3.7240e-06*** 
(9.464e-07) 
-1.0420e-05 
(2.821e-05) 
-2.1311e-04** 
(6.605e-05) 
-3.7753e-04*** 
(8.630e-05) 
2.0016e-04 
(6.220e-04) 
1.3097e-05 
(2.078e-04) 
 
0.1784 
 
0.09676 
 
0.6589 
3.797** 
(1.193) 
- 
 
-0.8091** 
(0.2660) 
2.273e-06 
(2.094e-06) 
1.344e-04* 
(6.250e-05) 
2.346e-04 
(3.048e-04) 
3.331e-05 
(1.827e-04) 
2.384e-04 
(2.132e-04) 
-8.595e-05 
(1.217e-04) 
 
0.2051 
 
0.4671 
 
0.4347 
*** p ≤ 0001; ** 0.001 < p ≤ 0.01; * 0.01 < p ≤ 0.05. 
x Due to the Breusch-Pagan test result, we present White’s heteroskedasticity-consistent errors. 
                                                 
4 As a robustness check we also specified the regression model using ln(pi), CAPi, and ln(CAPi) as dependent 
variables, where CAPi is the capacity of cinema i. All specifications qualitatively yield the same results.  
Since many communities and states offer a per-ticket subsidy for art house programming
5, we 
expect  a  significantly  negative  impact  of  ART.  For  self-explanatory  reasons,  we  expect 
NONPROFIT to be negative. 
The signs of the CAP variables will allow us draw conclusions about the relationship of the 
goods offered by the two types of movie theaters. If they are substitutes, the effect of the 
other type on admission prices will be negative. If they are complements, the effect will be 
positive, and if they are independent of each other, we will expect to find no significant 
effect.  More  precisely,  from  the  mainstream  perspective,  we  need  to  study  the  sign  and 
significance  of  the  CAP_ah  variables,  and  from  the  art  house  perspective  the  sign  and 
significance of the CAP_ms variables. Therefore, we will only be able to draw conclusions 
from regression results of subsets containing observations of one type only, since in the total 
set the two perspectives overlap. Table II shows the regression results. 
Using the total data set, we find a significantly negative impact of ART and NONPROFIT as 
expected.  Furthermore,  there  are  significantly  negative  coefficient  estimates  for  rival 
capacities on admission prices. This holds for rival art house as well as for rival mainstream 
capacity. Using the mainstream subset, we find a significantly negative effect of own and 
rival  mainstream  capacities.  However,  there  is  no  significant  price  effect  of  art  house 
capacities on mainstream prices. Using the art house subset, we find no significant price 
effect of mainstream capacities on art house prices, either. We also do not get any significant 
effect  of  other  art  houses.  The  reason  for  that  might  be  in  the  programming  choice. 
Mainstream  locations,  even  in  close  proximity,  have  very  similar  programming,  but  art 
houses  feature  a  rather  heterogeneous  portfolio  of  movies.  Therefore,  art  houses  are 
presumably  less  of  a  substitute  and  might  compete  less  within  their  category,  while 
mainstream cinemas are very substitutable among each other. 
 
4. Conclusions 
 
The small econometric exercise presented here, yields valuable insights for future studies of 
the movie theater industry. There is no evidence at all that art house and mainstream movie 
theaters affect each other positively or negatively in terms of prices. There is no evidence that 
“the mainstream movie theater experience” and “the art house movie theater experience” are 
related goods. This implies on the one hand that empirical studies that focus on one type and 
ignore the other one do not suffer from a sample selection bias, and demand models that do 
not include effects from the other theater type do not omit variables. On the other hand it 
implies that studies that do not differentiate between the types and pool observations, get 
biased results due to pooling apples and oranges. Our regression results illustrate this (Table 
II):  Using  the  total  data  set,  we  obtain  a  significantly  negative  effect  of  rival  art  house 
locations on admission prices. Inference from these results would require us to conclude a 
negative impact of rival art houses on all movie theaters in the local area. However, this 
effect  vanishes  completely,  if  the  subset  of  mainstream  locations  is  used.  Prices  of 
mainstream facilities are not significantly affected by the presence of art house facilities. 
Vice  versa,  the  results  of  the  total  data  set  suggest  a  significantly  negative  impact  of 
mainstream capacity on all admission prices in the local movie theater market that vanishes, 
if only art houses are used in the regression. 
 
 
 
                                                 
5 According to Koch (2005), this subsidy was on average € 0.23 per ticket in 2004.  
5. References 
 
Berauer, W. (2008) Filmstatistisches Jahrbuch 2008, Nomos: Baden-Baden. 
Cameron, S. (1986) “The Supply and Demand for Cinema Tickets: Some U.K. Evidence” 
Journal of Cultural Economics 10, 38-62. 
Davis, P. (2005) “The Effect of Local Competition on Admission Prices in the U.S. Motion 
Picture Exhibition Market” Journal of Law and Economics 48, 677-708. 
Dewenter, R. and M. Westermann (2005) “Cinema Demand in Germany” Journal of Cultural 
Economics 29, 213-231. 
Dixit, A.K. and J.E. Stiglitz (1977) “Monopolistic Competition and Optimal Product 
Diversity” American Economic Review 67, 297-308. 
Eliashberg, J. (2005) “The Film Exhibition Business: Critical Issues, Practice, and Research” 
in: A Concise Handbook of Movie Industry Economics by C.C. Moul, Ed., Cambridge 
University Press: Cambridge, 138-162. 
Fernández Blanco, V. and J.F. Baños Pino (1997) “Cinema Demand in Spain: A 
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Filson, D., D. Switzer and P. Besocke (2005) “At the Movies: The Economics of Exhibition 
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Gemser, G., M. Van Oostrum and M.A.A.M. Leenders (2007) “The Impact of Film Reviews 
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Kinowelt Filmverleih GmbH (2007) Allgemeine Geschäftsbedingungen in der Fassung vom 
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Koch, K.L. (2005) “Wirtschaftlichkeit: Arthaus Versus Multiplex”, RMC Rinke Medien 
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Polig, S. (2003) “‘Hulk’ eröffnet den Preiskampf”, SpiegelOnline, 2 July 2003, URL: 
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Cinema Demand in

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Filmstatistisches Jahrbuch

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The Impact of Film Reviews on the Box Office Performance of Art House Versus Mainstream Motion Pictures”

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A note on the relationship of mainstream and art house movie theaters

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A note on the relationship of mainstream and art house movie theaters

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