The Lead-Lag Puzzle of Demand and Distribution: A Graphical Method Applied to Movies

Authors:
Robert E. Krider;Tieshan Li;Yong Liu;Charles B. Weinberg
Affiliations:
Simon Fraser University, 8888 University Drive, Burnaby, BC V5A 1S6 Canada;Sauder School of Business, University of British Columbia, Vancouver, BC V6T 1Z2 Canada;Whitman School of Management, Syracuse University, Syracuse, New York 13244;Sauder School of Business, University of British Columbia, Vancouver, BC V6T 1Z2 Canada
Venue:
Marketing Science
Year:
2005

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Abstract

Understanding the lead-lag relationship between distribution and demand is an important and challenging issue for all marketers. It is particularly challenging in the movie industry, where the very short lifespan and decaying revenue and exhibition patterns of motion pictures means that the associated time series are short and nonstationary, rendering existing econometric methods unreliable. We propose an alternate method that uses state-space diagrams to determine lead-lag relationships. Straightforward to apply and interpret, it takes advantage of the eye's ability to see patterns that algebra-based formulations cannot easily recognize. A number of validation tests are provided to illustrate the usefulness and limitations of the method. We study the weekly data for 231 major movies released in 2000-2001. While econometric methods do not provide consistent results, the graphical method of visually inferred causality clearly shows a pattern that demand leads distribution for most movies. In other words, the dominant industry pattern is one of movie exhibitors monitoring box office sales and then responding with screen allocation decisions. The managerial implications of these findings are discussed.