The Effect of Local Competition on Retail Prices: The US Motion Picture Exhibition Market

This article provides empirical evidence on the relationship between local market structure and the prices charged to consumers in a particular retail market, the US motion picture exhibition market. I find that there is a statistically significant relationship between the geographic distribution of movie theaters in a market and the admission prices that they are able to charge. However, the magnitude of the price reducing effect of local competition appears to be economically modest. Moreover, I find no evidence that increases in geographic concentration leads to increased adult admission prices. The findings are directly relevant to merger policy in the industry and pertinent because of the dramatic changes in industry structure resulting from mergers that occurred during 2002. I conclude that popular and governmental concerns about horizontal mergers in the industry leading to dramatically increased admission prices are likely misplaced.

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