A Game-Theoretic Approach on Conflict and Its Resolution in Entertainment Business

In entertainment business, it is a standard business model for entertainment agencies to recruit trainees through competitive auditions, and then they raise apprentices within their wall-gardens using their personal networking which is an important strategic asset in entertainment business. Afterward, they can earn profits when their apprentices become stars. An important fact is that entertainment agencies have to afford huge sunk costs to raise numerous trainees while they cannot predict exactly who will be future stars exactly. Therefore, the best response of agencies is to make an exclusive contract for their potential stars. This is the most efficient way to recover sunk costs invested for raising trainees. However, a generic conflict is embedded in the exclusive contract because those who grow to be stars consider their stardoms are achieved by the both mixture of their personal talents and efforts harmonized by the initial personal networking of their agencies. A switch button to ignite conflicts between them is a exclusive profit split contract that is designed to give a huge favor to entertainment agency. It is the fundamental origin for mutual conflicts since intial split contract is typically designed to give a favor to entertainment agency. As the wall-gardened apprentices become stars, then they are induced to argue for increasing their split shares against agencies. But there is no objective and clear measure on how to split. Fortunately, both of them are cooperative players as their conflicts can deteriorate the marketability of stars once news media starts to report their conflicts. If both parties cannot resolve conflicts internally, then they are likely to be involved in law suits. We construct a game-theoretic model in order to scrutinize how their conflicts can be resolved. In an one-shot game, stars refrain from suing against their agencies if opportunity cost to deteriorate own images and if they are likely to lose fandom. Otherwise, stars can choose to sue, and then entertainment agencies can respond to modify original exclusive split rules for securing stable future incomes generated by their stars. In a finitely repeated game framework, we can verify that stars are able to seek out an external conflict resolution if the opportunity and sunk costs are infinitesimal and if the chance to win lawsuits is high enough.