The Welfare Effects of Vertical Integration in China's Movie Industry

We investigate the welfare effects of vertical integration in China's movie industry. We leverage data covering all theaters and 423 popular movies in China during 2014-2018. Integrated theaters show their movies for longer, allocate more screenings, and charge lower prices. There is no evidence of integrated movies being foreclosed to rival theaters. We estimate a model of consumers' demand and theaters' screening decisions. Vertical integration both mitigates distortions from revenue-sharing contracts and crowds out independent movies. Overall, vertical integration increases consumer surplus by 0.7%, with substantial heterogeneity across markets. The quality of integrated pairs is crucial in evaluating welfare effects