Vertical Integration and Market Foreclosure in Media Markets: Evidence from the Chinese Motion Picture Industry

Abstract

This paper investigates the impact of vertical integration and market foreclosure in media markets. Using theater-movie-day-level data from China, we show that integrated theaters charge lower prices, enjoy higher attendance, allocate more screenings, and run their own movies longer than movies of other distributors. Despite these differences, there is no evidence consistent with anticompetitive input and customer foreclosure in integrated theaters. On the one hand, integrated and independent theaters screen the same share of integrated and independent movies. On the other hand, revenue differences between continued theater-owned movies and discontinued independent movies are inconsistent with customer-market-foreclosure motives given existing differences in distribution incentives between integrated and nonintegrated structures. Finally, we estimate a random-coefficient discrete-choice model of movie demand and show that integrated theaters deliver a higher level of utility with integrated movies than with independent movies through the direct effects of lower prices and more screenings.