Does Vertical Integration Enhance Non-Price Efficiency? Evidence from the Movie Theater Industry

38 Pages Posted: 6 Feb 2017 Last revised: 8 Jun 2020

See all articles by In Kyung Kim

In Kyung Kim

Sogang University - Department of Economics

Vladyslav Nora

Economics department, Nazarbayev University

Date Written: November 1, 2019

Abstract

This paper examines how vertical integration affects non-price efficiency in the movie theater industry. Adopting a discrete choice framework, we derive consumer welfare under capacity constraints and fixed prices, and show that allocating capacity proportionally to demand is efficient. Applying our approach to estimating the efficiency of movie theaters' seat allocations, we show that integrated theaters may be more efficient than non-integrated ones at picking movies to screen and allocating seats across them. We propose a theoretical mechanism behind these results. Specifically, we show that integrated theaters have higher incentives to acquire demand information and hence can be more efficient in allocating the seats.

Keywords: vertical integration, efficiency, movie theater industry

JEL Classification: C1, L1, L8

Suggested Citation

Kim, In Kyung and Nora, Vladyslav, Does Vertical Integration Enhance Non-Price Efficiency? Evidence from the Movie Theater Industry (November 1, 2019). Available at SSRN: https://ssrn.com/abstract=2912111 or http://dx.doi.org/10.2139/ssrn.2912111

In Kyung Kim (Contact Author)

Sogang University - Department of Economics ( email )

35 Baekbeom-ro
Seoul, 121-742
Korea

Vladyslav Nora

Economics department, Nazarbayev University ( email )

53 Kabanbay Batyra Avenue
Astana, 010000
Kazakhstan

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