The Welfare Effects of Vertical Integration in China's Movie Industry

71 Pages Posted: 12 Mar 2022 Last revised: 10 Sep 2022

See all articles by Luming Chen

Luming Chen

University of Wisconsin - Madison - Department of Economics

Xuejie Yi

Stanford University - Department of Economics

Chuan Yu

Stanford University - Department of Economics

Date Written: September 8, 2022

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

Suggested Citation

Chen, Luming and Yi, Xuejie and Yu, Chuan, The Welfare Effects of Vertical Integration in China's Movie Industry (September 8, 2022). Available at SSRN: https://ssrn.com/abstract=4015937 or http://dx.doi.org/10.2139/ssrn.4015937

Luming Chen

University of Wisconsin - Madison - Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706
United States

Xuejie Yi

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
STANFORD, CA 94305-6072
United States

Chuan Yu (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
STANFORD, CA 94305-6072
United States

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