The Korean Economic Review
Vertical Integration and Market Foreclosure: Empirical Evidence from the Korean Movie Industry
Yun Jeong Choi (Yonsei University), Jong-Hee Hahn (Yonsei University) and Hojung Kim (Korea Information Society Development Institute)Year 2019Vol. 35No. 2
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 ofvertical 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 off or eclosure behavior.