Friday, March 24, 2017
In Kyung Kim, Nazarbayev University and Vladyslav Nora, Nazarbayev University examine Vertical Integration and Product Availability in the Movie Theater Industry.
ABSTRACT: We examine the effects of integration between distribution and exhibition on product mix and availability in the movie theater industry. Our model predicts that integrated theaters engage in foreclosure, but also have higher incentives to acquire demand information. We estimate that integrated theaters allocate more seats to their own titles, mostly at the expense of small independent movies. However, we find that despite this foreclosure effect integrated theaters match demand better turning away significantly fewer consumers and achieving higher consumer welfare than independent theaters. Our results suggest that the efficiency gains of vertical integration dominate the losses from foreclosure.