Schumpeter's Spectacle: How I Underestimated Cinematic Competition
By Bryan Caplan
I was overjoyed last year as I anticipated the opening of the Cinema de Lux at Fairfax Corner. If you haven’t been there, go – the theater is beautiful, the seats are extremely comfortable, and the screens are enormous.
But my initial enthusiasm was dampened by my reflections on the indirect effects of this new theater. My old stand-by, the theater at Fairfax Towne Center, seemed destined for bankruptcy. Sure, I was still better off with the new theater. But my total net benefit, I figured, was not a new theater, but a new theater minus an old theater.
How wrong I was. Faced with intense competition from the De Lux, Towne Center did not roll over and die. It re-doubled its efforts. It added new seats that are, in fact, even more comfortable than those at the De Lux. It added a pair of fun electronic street signs. It’s re-doing the whole interior.
Another unexpected benefit: The De Lux and Towne Center never carry the same movies at the same time. So what? The upshot is that both theaters now carry a lot of smaller movies that were previously available only over at the Cinema Arts Theater, if anywhere. The total number of convenient choices has virtually doubled.
The net benefit of the Cinema De Lux, then, has not been the new theater minus the old theater. In fact, the net benefit has not been the new theater plus the old theater. The net benefit has been the new theater plus an improved old theater plus an interaction effect of increased selection.
Like most economists, when I see a new Big Box Store open, I don’t fret about rival businesses screaming “unfair competition!” I remember Schumpeter writing about the creative destruction of the market, and smile.
After witnessing the saga of the De Lux, I think the joke’s partly on me. Yes, progress can mean that a fiery new entrant wipes out the last generation of firms. (As Seinfeld would say, “Not that there’s anything wrong with that.”) But progress can just as easily mean that a fiery new entrant struts its stuff, and inspires its competitors to respond with the sincerest form of flattery.