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

Author

Listed:
  • Jaedo Choi

    (University of Michigan, Ann Arbor)

  • Yun Jeong Choi

    (Yonsei University)

  • Minki Kim

    (University of California, San Diego)

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.

Suggested Citation

  • Jaedo Choi & Yun Jeong Choi & Minki Kim, 2017. "Vertical Foreclosure with Product Choice and Allocation: Evidence from the Movie Industry," Working papers 2017rwp-107, Yonsei University, Yonsei Economics Research Institute.
    • Handle: RePEc:yon:wpaper:2017rwp-107
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    References listed on IDEAS

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    More about this item

    Keywords

    Endogenous Product Characteristics; Movie Industry; Quality Unpre- dictability; Revenue-Sharing Contract; Vertical Integration;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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