Does Vertical Integration Decrease Prices? Evidence from Paramount Antitrust Case of 1948

Abstract

I empirically examine the impact of the 1948 Paramount antitrust case on ticket prices using a unique 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 consistent with Spengler’s (1950) prediction that vertical integration lowers prices through the elimination of double-marginalization. My results show that vertically integrated theaters charged lower prices and sold more admission tickets than nonvertically integrated theaters. I also find that the rate at which prices increased in theaters were slower before vertical separation than it was after separation. 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.