Tuesday, February 12, 2013

Vertical Integration in Spanish TV

Ricard Gil and Christian A. Ruzzier have a new paper investigating Spanish TV stations' decisions to generate their own content, "'Make or Buy' as Competitive Strategy: Evidence from the Spanish Local TV Industry." Essentially, they want to know if greater competition leads to more or less vertical integration.

Exploiting regulation-induced shocks to entry barriers and differences in regulation enforcement across cities to obtain a source of exogenous variation in product-market competition, we establish a negative causal effect of competition on vertical integration in the setting of the Spanish local television industry between 1995 and 2002.

 Why would this be the case? With less competition, the markups for both content provision and for local distribution are higher. This increases the double marginalization problem and firms may vertically integrate even if it reduces productivity. When this problem diminishes, the double markup problem is not worth solving through vertical integration.


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