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Exclusivity will typically enhance the value of a product for a retailer. Being the only outlet for some period of time from which a customer can purchase the product in a given area should enable the seller to charge a premium price. Because the retailer could charge a premium price under this arrangement, the distributor in turn might be able to charge the retailer a premium price for that period and scope of exclusivity. Indeed, in the 1930s and '40s, that was the logic that underlay the distribution of motion pictures. Distributors would license exhibitors on higher terms for a limited, first-run engagement, granting the theatre owner a “clearance” over competing theatres in a broad geographic area, for a time during and even following the first run engagement.
The Evolution of Antitrust in Film
The landmark antitrust case United States v. Paramount Pictures, 334 U.S. 131 (1948) (http://bit.ly/OJpLlI), restructured the film industry by separating production from exhibition. As part of that restructuring, the U.S. Supreme Court established “rules” for when film clearances and runs would be deemed reasonable. The Supreme Court rejected the argument that clearances were per se unlawful. The court upheld the lower court's finding that a clearance could be reasonable when used to protect an exhibitor's investment in the license and when it was not unduly extended in time or geographic area.
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