Johns Hopkins Carey Business School
Does Vertical Integration Decrease Prices? Evidence from the Paramount Antitrust Case of 1948
Abstract: I empirically examine the impact of the 1948 Paramount antitrust case on ticket prices using aunique data set collected from Variety magazine issues between 1945 and 1955. With weekly movie theater information on prices, revenues and theater ownership for an unbalanced panel of 393 theaters located in 26 different metropolitan areas, I find evidence that vertically integrated theaters charged lower prices and sold more admission tickets than non-vertically integrated theaters. I also find that the rate at which prices increased in theaters were slower before vertical separation than it was after separation. These findings together with institutional and antitrust case aftermath detail are consistent with the prediction that vertical integration lowers prices through the elimination of double-marginalization. A back of the envelope calculation suggests that losses in consumer surplus due to the Supreme Court resolution suggesting theater vertical separation from major studios were sizable.
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