Social Networks and Exchange: Self-Confirming Dynamics in Hollywood

Studies have consistently found that social structure influences who transacts with whom, and that actors appear to benefit when exchange occurs embedded within these relations rather than in an unstructured market. This paper argues that the apparent benefits of embedded exchange can arise from an endogenous mechanism: Actors offer better terms of trade and allocate more resources to transactions embedded within existing social relations, thereby contributing to the ostensible advantages of such exchange patterns. In the motion picture industry, not only do distributors show a preference for carrying films involving key personnel with whom they had prior relations, but also they tend to favor these films when making decisions regarding their release (opening dates and the level of promotion). After controlling for the effects of these decisions, films with stronger prior relations to the distributor perform worse at the box office. The results reveal that, rather than benefiting from repeated exchange, distributors produce these effects through their own efforts.