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Does Vertical Integration Decrease Prices? Evidence from Paramount Antitrust Case of 1948

53 Pages Posted: 16 Nov 2011 Last revised: 30 Jul 2012

Ricard Gil

Johns Hopkins University - Carey Business School

Date Written: November 15, 2011

Abstract

I empirically examine the impact of the 1948 Paramount antitrust case on ticket prices using a unique data set collected from Variety magazine issues between 1945 and 1955. With weekly movie theater information on prices, revenues and theater ownership for an unbalanced panel of 393 theaters located in 26 different metropolitan areas, I find evidence consistent with Spengler’s (1950) prediction that vertical integration lowers prices through the elimination of double-marginalization. My results show that vertically integrated theaters charged lower prices and sold more admission tickets than nonvertically integrated theaters. I also find that the rate at which prices increased in theaters were slower before vertical separation than it was after separation. A back of the envelope calculation suggests that losses in consumer surplus due to the Supreme Court resolution and the corresponding sale of theater holdings by Paramount and seven other companies were sizable.

Keywords: vertical integration, prices, antitrust, movies

JEL Classification: L22, L42, L82

Suggested Citation

Gil, Ricard, Does Vertical Integration Decrease Prices? Evidence from Paramount Antitrust Case of 1948 (November 15, 2011). Available at SSRN: https://ssrn.com/abstract=1960171 or http://dx.doi.org/10.2139/ssrn.1960171

Ricard Gil (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://carey.jhu.edu

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