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

Yun Jeong Choi, Jong Hee Hahn, Hojung Kim

Research output: Contribution to journalArticle

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 Jan 1

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)

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