Forecasting in Rapidly Changing Environments: An Application to the US Motion Picture Industry

• Main Authors: MUKHERJEE, Anirban, KADIYALI Vrinda
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2007
• Subjects: Marketing
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/5011; https://ink.library.smu.edu.sg/context/lkcsb_research/article/6010/viewcontent/ForecastinginRapidlyChangingEnvironments.pdf
• Institution: Singapore Management University

Markets with rapidly changing environments provide forecasting challenges because of fewer similarities between past and future outcomes. In this paper, we provide a methodology that enables forecasting with relatively short histories. The application is to the U.S. motion picture industry where we forecast revenues in theatrical, sales (DVD and VHS), and rental channels. Using short market histories of similar products, we account for (1) observed and unobserved movie-specific characteristics, (2) seasonality of demand, (3) competition within and across multiple distribution channels (4) market expansion, substitution and complementarity between movies inside and across distribution channels. We extend the multiplicative competitive interaction model (Cooper and Nakanishi (1988)) to multiple distribution channels and build a novel two-step estimation method that allows for endogenous release schedules. We find our model outperforms existing models in most cases.