Empirical essays on industrial organization

This dissertation estimates the effects of vertical integration and word‐of‐mouth on product sales using the data from the Korean movie industry. ❧ In chapter 1, I examine exhibition behavior of movie theaters in the Korean movie industry in order to investigate the influence of vertical integration on competition. I focus specifically on the choice of films, screen allocation, and movie run stopping over different vertical structures. Because, in the Korean movie industry, not only can we observe the same movie being shown in both integrated theaters and unintegrated theaters but also observe the same theater showing movies from distributors of different vertical structures, I use movie and theater fixed effects to control for the unobserved quality of movies and theaters. The empirical results suggest that vertically integrated theaters are more likely to choose their affiliated movies than other competing movies, and they choose them more often than other competing theaters do. In addition, integrated theaters give their own movies a greater number of screenings over longer time periods. This effect is mostly restricted to company operated theaters, and it is greater when movies are expected to get positive word‐of‐mouth as well as when underlying demand is high such as holidays. I argue that these results are not driven by the matching between movie and theater based on anything other than integration status, and that vertical integration leads to the foreclosure, denial of access, of independent distributors to integrated theaters, to the detriment of consumers. ❧ Chapter 2 analyzes the effects of word‐of‐mouth on box‐office sales, another important feature in movie industry. In general, consumers often rely on the information from their peers and other sources like internet sites when product quality is uncertain before its purchase so that word‐of‐mouth is believed to be one of the most influential factors in product sales. In this chapter, I quantify the effect of word‐of‐mouth on weekly box‐office revenues in the context of the Korean movie industry. Using online user ratings and reviews as well as a new dataset including pre‐expectation rate and satisfaction rate for each movie, I find strong evidence that word-of-mouth is significant in movie business. My estimates imply that word‐of‐mouth explains 24% of total box‐office sales and 68% of sales from the second week when we compare movies at 75th percentile of satisfaction rate to movies at 25th percentile, assuming that they have the same level of pre‐expectation.