Sunk costs and the dynamics of creative industries

Bakker, Gerben (2015) Sunk costs and the dynamics of creative industries. In: Jones, Candace, Lorenzen, Mark and Sapsed, Jonathan, (eds.) The Oxford Handbook of Creative Industries. Oxford handbooks. Oxford University Press, Oxford, UK, pp. 351-386. ISBN 9780199603510

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Abstract

This chapter examines the evolution of modern entertainment industries. It reviews ways to conceptualize and quantify the subsequent waves of creative destruction and investigates how sunk costs affected the industry’s evolution through its interaction with variety, market integration, product differentiation and price discrimination. Four tendencies shaped the entertainment industries’ evolution: first, endogenous sunk costs often led to a competitive escalation of production expenditures—‘quality races’—which increased industrial concentration. Second, marginal revenues largely equalled marginal profits, which led to extreme vertical integration through ownership or revenue-sharing contracts, an oversupply of variety, and a dual market structure with high-concept blockbuster products and low-budget niche products. Third, entertainment’s toll good characteristics led to business models optimizing exclusion possibilities in the value chain and to substantial income inequality among creative inputs. Finally, the project-based character of entertainment production implied large within- and between-industry agglomeration benefits and often led to geographical concentration. Dynamic product differentiation allowed various old formats to survive the waves of creative destruction, albeit in much smaller incarnations.

Item Type:	Book Section
Official URL:	http://www.oup.com/
Additional Information:	© 2015 Oxford University Press
Divisions:	Economic History
Subjects:	H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HG Finance
Date Deposited:	20 Jan 2016 15:38
Last Modified:	24 Oct 2023 14:23
Projects:	RES-331-25-3012
Funders:	Economic and Social Research Council
URI:	http://eprints.lse.ac.uk/id/eprint/65073

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