Abstract
This study examines vertical integration in the Japanese movie industry. I estimate an admission price equation, and a moviegoing demand equation derived from a discrete choice model of product differentiation. In order to overcome identification problems, this study exploits a panel structure dataset. My results show that the price of vertically integrated theaters tends to be higher than nonintegrated theaters, but it appears to be due to the inherent high quality of vertically integrated theaters. On the other hand, vertically integrated theaters are more popular among consumers and have higher attendance than nonintegrated theaters. Even after controlling the theater fixed effects, attendance for vertically integrated theaters is still larger than nonintegrated theaters. That is, the integration of producers/distributors and theaters is likely to be a source of economic efficiency. Policy implications are also proposed.
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Notes
Vertical integration is one of the hottest issues among antirust experts. As one may be able to recall, in 2001, although the U.S. Department of Justice (DOJ) had approved the proposed merger between General Electric and Honeywell after detailed investigation, the European Commission (EC) blocked the integration because of the threat of market foreclosure of aircraft engine and avionics firms through the bundling practice of the merging firms. Nalebuff (2009) conducted a detailed analysis of this case. Cooper et al. (2005a) conducted a comparative study of the U.S. and European Union approaches to vertical controls. In February 2007, the EC released the draft version of the guidelines for the assessment of the merger between companies in a vertical or conglomerate relationship in order to make the EC’s commitment more clear and predictable for businesses (see the EC (2007)).
This subsection greatly depends on the literature listed in the References.
Gil (2009b) points out that contracts between exhibitors and distributors generally are silent about movie run length and the revenue-sharing contract is a source of incentive misalignment between independent theaters and distributors. Details in movie contracts in Japan are not well known, however Kinema Junpo Film Institute (2005) reports that, generally, box office revenues are also shared by distributors and exhibitors and movie run length is determined between distributors and exhibitors ex-post, with given initial box office conditions as well as various other factors.
Therefore, ξs include approximation errors.
See Ministry of Economy, Trade and Industry, Tokutei Sabisu Sangyo Jittai Chosa Hokokusho: Eigakan Hen (Report on Survey of Selected Service Industry: Movie Theaters), Tokyo: Keizai Sangyo Tokei Kyokai, each edition (in Japanese).
Geographic market delineation is another important issue that must be examined. However, this is beyond the scope of this study and, therefore, I simply define each prefecture as a market. It must be noted that Japanese geographic features are very complicated: these consist of four large islands and many small ones, with the large islands including many mountains and rivers. The simple distance between two points tends not to represent the travel cost, because mountains and rivers may be located between the points. On the other hand, the borders of prefectures are typically defined by mountains and rivers; hence, the market definition of this study does not seem to cause serious problems.
In this study, all distances between two points are calculated as the Great Circle Distance.
In estimating the fixed effect model, three market dummies are dropped.
The model does not include a constant term.
Orbach and Einav (2007) study uniform pricing in the U.S. movie exhibition market.
In addition to the discounts for students and older people, there is the service day, on which the admission price is set at 1,000 JPY, and the ladies’ day, on which the price for females is discounted to 1,000 JPY. These are uniformly applied by almost all theaters.
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Acknowledgements
I would like to express sincere gratitude to the editor (Michael Peneder) and an anonymous referee. I am also thankful to attendees at seminars at the Competition Policy Research Center (CPRC), Aoyama Gakuin, the Japan Economic Association annual meetings, and the Canadian Law and Economics Association meetings, for their valuable comments and suggestions. This is an outgrowth of research projects at the CPRC. I would like to thank the Ministry of Economy, Trade and Industry and the Ministry of Internal Affairs and Communications for allowing me to use the data used in this study. The views expressed in this paper are mine, and do not reflect the views of the CPRC, the Japan Fair Trade Commission, or any individual commissioner. Needless to say, all remaining errors are mine.
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Sunada, M. Vertical Integration in the Japanese Movie Industry. J Ind Compet Trade 10, 135–150 (2010). https://doi.org/10.1007/s10842-009-0059-0
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DOI: https://doi.org/10.1007/s10842-009-0059-0