Vertical Foreclosure with Product Choice and Allocation: Evidence from the Movie Industry

Jaedo Choi, Yun Jeong Choi and Minki Kim
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Yun Jeong Choi: Yonsei University
Minki Kim: University of California, San Diego

No 2017rwp-107, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: We investigate a vertically integrated theater's contract and screen allocation decisions in the movie industry characterized by quality unpredictability, price uni- formity, and revenue-sharing contracts. Based on a simple theoretical model that describes the decisions of theaters and movie distributors, we derive two mecha- nisms of foreclosure behaviors: selection and allocation foreclosure. Our empirical results suggest that integrated theaters not only impose a higher quality standard for movies from independent distributors at contracts but also screen their aliated movies more even after contract. Vertically integrated theaters' favoritism toward its aliated movies are more pronounced at company-owned theaters than franchised theaters. Further, we also nd integrated theaters' favorable treats for their rival movies compared to independent movies as well as non-linearity of the foreclosure e ects across movie quality and seasonality.

Keywords: Endogenous Product Characteristics; Movie Industry; Quality Unpre- dictability; Revenue-Sharing Contract; Vertical Integration (search for similar items in EconPapers)
JEL-codes: L13 L22 L40 L82 (search for similar items in EconPapers)
Pages: 51pages
Date: 2017-09
New Economics Papers: this item is included in nep-com, nep-cta, nep-cul and nep-ind
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