The Welfare Effects of Vertical Integration in China's Movie Industry
68 Pages Posted: 12 Mar 2022 Last revised: 19 Jul 2023
Date Written: April 4, 2023
Abstract
This paper investigates the welfare effects of vertical integration in China's movie industry. We leverage data covering all theaters and 423 popular movies in China during 2014-2018. We find no evidence of integrated movies being foreclosed to rival theaters. Integrated theaters show their movies for longer, allocate more screenings, and charge lower prices. We estimate a model of consumers' demand and theaters' screening decisions. Integrated theaters internalize a substantial fraction of their upstream companies' profits. Vertical integration both mitigates distortions from revenue-sharing contracts and steers demand favoring integrated movies. Overall, vertical integration increases consumer surplus with considerable heterogeneity across markets.
Keywords: Vertical integration, movie industry, consumer welfare
JEL Classification: D43, L13, L22, L42, L82
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