Vertical integration and market foreclosure: Empirical evidence from the Korean movie industry

Yun Jeong Choi, Jong Hee Hahn, Hojung Kim

Research output: Contribution to journalArticlepeer-review

Abstract

We examine how the foreclosure incentive of firms is affected by the degree of vertical integration in related markets, which is measured by the number of vertically integrated firms. We specifically investigate how the exhibition behavior of the vertically integrated and separated theaters in the Korean movie industry responds to a change in the degree of vertical integration by using daily screening data over a 7-year period. The vertical separation of a previously integrated firm serves as a structural break. Our results show that the foreclosure incentive of the vertically integrated firms generally weakens as the degree of vertical integration decreases. However, the existing integrated firms strengthen their intensity of foreclosure toward the newly separated firm after the breakup, perhaps to weaken the market position of the previously integrated rival. Moreover, we find that the newly separated firm behaves similarly to other independent firms, with no sign of foreclosure behavior.

Original languageEnglish
Pages (from-to)417-438
Number of pages22
JournalKorean Economic Review
Volume35
Issue number2
Publication statusPublished - 2019

Bibliographical note

Funding Information:
* We would like to thank Yusun Hwang and the participants of the 2014 Denver and the 2015 Wellington Western Economic Association International Annual Conferences, the SSK seminar at Yonsei University, and the 2015 Korea Economic Association Economics Joint Conference at Yonsei University for their useful comments. This work is supported by the National Research Foundation of Korea Grant funded by the Korean Government (NRF-2016S1A3A2923769) and the Yonsei University Future-leading Research Initiative of 2015 (2015-22-0142). This paper is an extensively revised version of the master’s thesis of Hojung Kim at Yonsei University, which is supervised by Yun Jeong Choi and Jong-Hee Hahn. ** Second author, associate professor, School of Economics, Yonsei University. Email: yun.choi@yonsei.ac.kr *** Corresponding author, professor, School of Economics, Yonsei University, Seoul, Korea. Tel: 82-2-2123-2466; Email: hahnjh@gmail.com **** First author, research associate, Korea Information Society Development Institute, Email: nanoiito@kisdi.re.kr

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)

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