The Effects of Vertical Integration in the Korea Movie Industry: Efficiency Versus Exclusion

This paper tries to verify empirically whether vertical integration results in efficiency or exclusion in the Korea movie industry. We gathered a large panel data set—260 movies in 584 theaters—from recent movie screenings and vertical integration between the years 2013 and 2018, and tested whether exhibitors exclude non-affiliate competitors’ movies, or whether exhibitors screen more movies that take advantage of vertical integration in terms of enjoying information advantages, aligning incentives, or reducing transaction costs. The effects on screening frequency of production-and-distribution-integrated movies that are not affiliated with exhibitors play a critical role in determining the identification criterion in our test. Our results may be better explained by the efficiency effects of vertical integration rather than exclusionary effects in the Korea movie industry.