Race and Anticompetitive Markets

Working Paper: DRAFT – DO NOT CITE Race, Markets, and Hollywood's Perpetual Antitrust Dilemma Hosea H. Harvey* This Article focuses on the oft-neglected intersection of racial bias and anti-competitive markets. Applying theory to practice through historical, contextual, and empirical analysis, the Article describes the state of Hollywood motion-picture distribution from its anti-competitive beginnings through the industry’s role in creating an anti-competitive, racial impasse at the end of the last century. The Article demonstrates through empirical analysis that race-based inefficiencies have plagued the film distribution process and that such inefficiencies were caused primarily by the anti-competitive structure of the market itself, and not merely by overt or intentional racial-discrimination. After explaining why traditional anti-discrimination laws would be ineffective remedies for such inefficiencies, solutions are framed through antitrust remedies and market mechanisms. *Assistant Professor of Law and Political Science, Temple University, Beasley School of Law. J.D. (2000), Stanford Law School; Ph.D. (Political Science) (2005), Stanford University. INTRODUCTION Some years ago, despite a strong script and a leading black entertainer behind the project, every major Hollywood studio rebuffed production of the feature-film Amistad-- leaving Steven Spielberg’s DreamWorks SKG studio as the only viable option.1 It seemed that Amistad was somehow coded for “blacks only” as if its commercial fate rested solely in the hands of African-Americans while being automatically and uniformly rejected by the rest of the U.S. population, white Americans in particular. 1 The executives who refused had comments ranging from “No one is interested in this” to the more succinct “Slaves on a ship. How revolting!” See, e.g., Donna Bailey Nurse, A Tale of Two Ships Launched in Hollywood, THE GLOBE AND MAIL (Toronto), March 27, 1998. 2 Amistad’s release was eventually widened to more than 500 theaters, but barely so. 3 Studying the real-life consequences of racial bias in these markets is not an entirely new phenomenon, 1 Working Paper: DRAFT – DO NOT CITE Dogged persistence and an army of A-list industry leaders eventually found a production home for Amistad. But once a film is produced, control over its box-office potential and market success shift to Hollywood’s highly consolidated marketing and distribution regimes. So what might we expect from a lavishly filmed Spielberg release attached to well-recognized actors? If you were to imagine a marketing blitz followed by a massive, nationwide release, you would be very wrong. Instead, Amistad was shuttled to as few theaters as humanly possible, all things considered. The theory, as set out above, was that consumer demand for the product was nil. Yet Amistad grossed $14,192 per screen at 322 theaters during its first week of release in the post- Thanksgiving season.2 By comparison, in their first weeks of release, The Truman Show grossed $13,606, Air Force One grossed $12,709 and Armageddon generated $11,544 per screen. Yet, because a movie like Armageddon was initially distributed to nine times as many theaters as Amistad, its opening weekend box office grosses were significantly higher. What might explain this seemingly inefficient result? In this Article, I argue that racially biased market outcomes are long-standing consequences and characteristics of industries that lack competition. So to solve these biases, competition, market forces, and antitrust law – not traditional anti-discrimination regimes – will provide the best remedies. This Article examines race bias in an unfamiliar context – outside of the familiar rubric of traditional anti-discrimination regimes. In doing so, it treads on relatively unfamiliar ground. Law scholars have not given adequate attention to a fairly significant problem – the fact that non-competitive markets fuel inefficient and racially biased outcomes – not just in the labor market, but also especially in economic 2 Amistad’s release was eventually widened to more than 500 theaters, but barely so. 2 Working Paper: DRAFT – DO NOT CITE outcomes relating to production, creation, and distribution of goods and services.3 When we move beyond racial-disparities in the traditional employer/employee relationship, what becomes of racial bias in the transactional marketplace? In these markets where we see a sort of anti-competitive racial impasse, how can we more easily determine whether racial inequities remain, what causes them, and how the law can eliminate them? This Article proceeds as follows. First, I examine the broad contours of existing race-bias scholarship. Next, I trace the development of the Hollywood production and distribution system, with an eye toward the role that a lack of competition might play in structuring racially stratified outcomes. Then, I turn toward the modern pre-video-on- demand (pre-VOD) era, specifically the contextual role that race (and to a lesser extent, gender) played in feature film distribution between the years 1991 and 2000. Through econometric modeling of race, distribution, and outcomes data, I attempt to determine the extent of a race-based injury being caused by non-competitive distribution market forces.4 The data shows that race-bias is indeed a driving force of distribution decisions, and likely rooted primarily in a lack of competition, although such decisions must also be contextualized within a prior history of explicit racial preferences and/or racial animus. Therefore, a review of anti-discrimination remedies shows why antitrust law 3 Studying the real-life consequences of racial bias in these markets is not an entirely new phenomenon, but is still a largely undeveloped field. Ian Ayres is among leaders in the field and has made many important contributions. Prior to his widely cited car audit experiment, few legal scholars had broached the subject. See, e.g., Ian Ayres & Peter Siegelman, Race and Gender Discrimination in Bargaining for a New Car, 85 AM. ECON. REV. 304 (1995). See also IAN AYRES, PERVASIVE PREJUDICE? UNCONVENTIONAL EVIDENCE OF RACE AND GENDER DISCRIMINATION (2001). 4 As the Article explains later, the data gathered herein includes a series of gender-related variables. Although gender (standing alone) is not fully discussed here, except in contrast to race, the discussion of how gender differs from race in this framework will be the subject of a subsequent article. 3 Working Paper: DRAFT – DO NOT CITE and market-forces provide a more robust analytical framework for the problem.5 Finally, I offer tentative conclusions, next steps, and discuss areas of uncertainty. The difficulty in connecting antitrust injury and racial outcomes in this Article is underscored by a frank scholarly admission: “there seems to be a widespread, implicit belief (at least among white males) that race and gender discrimination is not a serious problem” in markets defined by products, not workers.6 Accordingly, legal scholars have engaged in few studies of the role that race plays in structuring modern marketplace interactions between seller and buyer and the overall racially polarized structure of market movements within industries.7 This lack of credible information, particularly regarding the role of race in structuring decisions about what to sell, and to whom, is troubling if one cares about remedying modern commercial racial bias. Therefore, the goals of this Article are twofold – (1) to move further toward engaging market-wide and antitrust scholarship with the empirical analysis of discrimination and (2) to highlight an underdeveloped area of legal study – solving the harms resulting from markets where race plays an important, but difficult to identify role in shaping market outcomes. 5 My concerns in this Article focus on identifying harms in a market that is not operating at maximum efficiency. In a different article, one might solve for problems of bias in markets where such bias is indeed efficient – at least with respect to profit maximization. 6 AYRES, supra note ** at 3. 7 See, e.g., Ian Ayres et. al., supra note ** (noting “almost no one has tested whether consumers’ taste for discrimination might be directed at a seller’s race itself (or the race of a seller’s employees). This failure to test is unjustified.”) 4 Working Paper: DRAFT – DO NOT CITE I. BIAS AND THE SCHOLARLY PATH NOT TAKEN More than forty-five years after President Johnson signed the Civil Rights Act of 19648 in an effort to forthrightly reduce bias in the United States, the commercial marketplace and large organizations have improved with respect to overall levels of racial bias. But marketplace dealings with respect to race are still far from perfect. Certainly the Civil Rights Act of 1964, its progeny, and sisters at the state and local level were necessary to combat a legacy of de jure and de facto inequality.9 These anti- discrimination remedies substantially eroded discrimination in public and private life – by penalizing employers, governments, and individuals who discriminated. Although much work remains to be done, overt manifestations of racial prejudice have declined to the point where old-fashioned intentional discrimination is harder to find, despite our awareness that racial inequalities remain.10 In place of the old prejudice, new and more difficult to reach racial problems are challenging our assumptions about how law can fully eradicate bias in the United States – particularly in commerce. In more recent times, questions of how racial bias should be mitigated have moved beyond political and formal integration to more intractable questions about how racial minorities are incorporated into the cultural and economic fabric of American life. These more intractable questions are difficult to answer because research pointing in the direction of answers is scarce. Further, well-intentioned actors who are unintentionally biased or 8 Pub. L. No. 88-352, 78 Stat. 241; 42 U.S.C. Sec. 2000a to 2000h-6. 9 See, e.g., JOHN HOPE FRANKLIN AND A. A. MOSS, FROM SLAVERY TO FREEDOM: A HISTORY OF NEGRO AMERICANS (New York: A.A.

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