Sunday, March 18, 2012

Double Marginalization in the Movie Industry

Ricard Gil has a great new paper, "Does Vertical Integration Decrease Prices? Evidence from Paramount Antitrust Case of 1948." This was a landmark case that forced the studios to divest the theaters they owned. Gil painstakingly pored over news stories in dusty copies of Variety he found in libraries to collect ticket prices and admissions data for theaters affected and not affected by the decision. His abstract states:
My results show that vertically integrated theaters charged lower prices and sold more admission tickets than nonvertically integrated theaters.

When you own complements, you tend to charge lower prices. He goes on:
A back of the envelope calculation suggests that losses in consumer surplus due to the Supreme Court resolution and the corresponding sale of theater holdings by Paramount and seven other companies were sizable.

The Feds got it wrong again.

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