Vertical Integration in Motion Picture Industry

Abstract: This paper examines the impacts of vertical integration on pricing, screening, run length and demand in motion picture industry using movie-theater-day level data from China. Our results indicate that integrated theaters charge higher prices, allocate more screens to and run longer lengths for their own movies than movies distributed by distributors owning another theater chain, which are the evidence of vertical foreclosure. Although the higher prices reduce demand, integrated theaters promote the demand of their own movies by allocating more screens to them and other measures. Finally, we find that the foreclosure is more prevalent when the own movies of integrated theaters have lower quality and faces competition from movies in the same genre, the integrated theaters have higher quality, face a stronger competition from other theaters and is owned by the central government.