Research
Working Papers
Preemptive Entry and Technology Diffusion: The Market for Drive-in Theaters, 2025
Abstract: This paper studies the role and incidence of entry preemption strategic motives on the dynamics of new industries, while providing an empirical test for entry preemption, and quantifying its impact on market structure. The empirical context is the evolution of the U.S. drive-in theater market between 1945 and 1957. We exploit a robust prediction of dynamic entry games to test for preemption incentives: the deterrence effect of entering early is only relevant for firms in markets of intermediate size. Potential entrants in small and large markets face little uncertainty about the actual number of firms that will eventually enter. This leads to a non-monotonic relationship between market size and the probability of observing an early entrant. We find robust empirical support for this prediction using a large cross-section of markets. We then estimate the parameters of a dynamic entry game that matches the reduced-form prediction and quantify the strength of the preemption incentive. Our counterfactual analysis shows that strategic motives can increase the number of early entrants by as much as 50 percent in mid-size markets without affecting the number of firms in the long run. By causing firms to enter the market too early, we show that strategic entry preemption leads on average to a 5% increase in entry costs and a 1% decrease in firms' expected value (relative to an environment without strategic investments).
(with Ricard Gil, Jean-François Houde and Yuya Takahashi)
Forthcoming, Rand Journal of Economics
PDF
NBER WP
Replication Package
Forthcoming, Rand Journal of Economics
Abstract: This paper studies the role and incidence of entry preemption strategic motives on the dynamics of new industries, while providing an empirical test for entry preemption, and quantifying its impact on market structure. The empirical context is the evolution of the U.S. drive-in theater market between 1945 and 1957. We exploit a robust prediction of dynamic entry games to test for preemption incentives: the deterrence effect of entering early is only relevant for firms in markets of intermediate size. Potential entrants in small and large markets face little uncertainty about the actual number of firms that will eventually enter. This leads to a non-monotonic relationship between market size and the probability of observing an early entrant. We find robust empirical support for this prediction using a large cross-section of markets. We then estimate the parameters of a dynamic entry game that matches the reduced-form prediction and quantify the strength of the preemption incentive. Our counterfactual analysis shows that strategic motives can increase the number of early entrants by as much as 50 percent in mid-size markets without affecting the number of firms in the long run. By causing firms to enter the market too early, we show that strategic entry preemption leads on average to a 5% increase in entry costs and a 1% decrease in firms' expected value (relative to an environment without strategic investments).
Heterogeneity in Vertical Foreclosure: Evidence from the Chinese Film Industry, 2025
Abstract: How do vertically integrated firms’ pricing and product provision decisions change with upstream and downstream competition? We answer this question in the context of the Chinese film industry. Theaters allocate significantly fewer showings to non-integrated films. This foreclosure effect is particularly pronounced in two scenarios: when an integrated theater faces limited spatial competition, and when an integrated film is similar to competing films. To measure welfare effects, we estimate a model of consumer preferences and theater showings choice using a novel method that combines standard demand data with film ratings data. Our results show that integrated theaters internalize a substantial portion of their upstream profits, driving foreclosure behavior that distorts showings. Counterfactual simulations show that vertical integration increases consumer welfare by 2.4% in the median market, but reduces consumer welfare in 7% of markets. The welfare effects of foreclosure vary with upstream competition between films and downstream competition between theaters, and we show that targeted antitrust policy that removes integration based on measures of market competition can substantially increase welfare.
(with Charles Hodgson)
PDF
NBER WP
Promarket Article
Abstract: How do vertically integrated firms’ pricing and product provision decisions change with upstream and downstream competition? We answer this question in the context of the Chinese film industry. Theaters allocate significantly fewer showings to non-integrated films. This foreclosure effect is particularly pronounced in two scenarios: when an integrated theater faces limited spatial competition, and when an integrated film is similar to competing films. To measure welfare effects, we estimate a model of consumer preferences and theater showings choice using a novel method that combines standard demand data with film ratings data. Our results show that integrated theaters internalize a substantial portion of their upstream profits, driving foreclosure behavior that distorts showings. Counterfactual simulations show that vertical integration increases consumer welfare by 2.4% in the median market, but reduces consumer welfare in 7% of markets. The welfare effects of foreclosure vary with upstream competition between films and downstream competition between theaters, and we show that targeted antitrust policy that removes integration based on measures of market competition can substantially increase welfare.
The Supply-Side Effects of Long-Term Care Insurance in China, 2026
Abstract: Although public long-term care insurance (LTCI) programs are prevalent globally, their effects on market supply of and access to long-term care (LTC) remain understudied. We analyze China’s pilot public LTCI program, which reimbursed LTC services at regulated prices for elderly individuals, using administrative establishment registration data and a large-scale labor market survey. Exploiting variation from the program's staggered rollout, we find that the number of quarterly LTC provider entrants increased by 245% and the LTC employment share by 120%. We estimate a model of elderly individuals’ choice between informal and formal care. Our estimates indicate that supply expansion and improved affordability driven by LTCI increased the aggregate share of formal care use among eligible beneficiaries. LTCI benefits for informal care did not discourage formal care providers' market entry.
(with Yu Chen and Feng Huang)
PDF
Abstract: Although public long-term care insurance (LTCI) programs are prevalent globally, their effects on market supply of and access to long-term care (LTC) remain understudied. We analyze China’s pilot public LTCI program, which reimbursed LTC services at regulated prices for elderly individuals, using administrative establishment registration data and a large-scale labor market survey. Exploiting variation from the program's staggered rollout, we find that the number of quarterly LTC provider entrants increased by 245% and the LTC employment share by 120%. We estimate a model of elderly individuals’ choice between informal and formal care. Our estimates indicate that supply expansion and improved affordability driven by LTCI increased the aggregate share of formal care use among eligible beneficiaries. LTCI benefits for informal care did not discourage formal care providers' market entry.
The Vertical Spillover Effect of Import Liberalization: A Study of the Chinese Movie Theater Industry, 2023
PDF
Abstract: I study how liberalization of upstream imports leads to downstream retail expansion—a "forward spillover" effect—which subsequently increases consumer access to upstream domestic products—a "backward spillover" effect in China's movie market. I estimate consumer demand for domestic and foreign movies and theater profit with a Hotelling-style spatial competition model. I estimate theaters' fixed operating costs from inequality optimality conditions for entry and exit. Imported movies have little substitutability with domestic movies and are economically important for theaters to compensate for fixed costs. Simulations of a return to the protectionist quota suggest that the liberalization benefited consumers and domestic upstream movie producers and that the benefit is magnified by import-induced theater entry into the market.
Abstract: I study how liberalization of upstream imports leads to downstream retail expansion—a "forward spillover" effect—which subsequently increases consumer access to upstream domestic products—a "backward spillover" effect in China's movie market. I estimate consumer demand for domestic and foreign movies and theater profit with a Hotelling-style spatial competition model. I estimate theaters' fixed operating costs from inequality optimality conditions for entry and exit. Imported movies have little substitutability with domestic movies and are economically important for theaters to compensate for fixed costs. Simulations of a return to the protectionist quota suggest that the liberalization benefited consumers and domestic upstream movie producers and that the benefit is magnified by import-induced theater entry into the market.
Works in Progress
Assessing Theories of Vertical Integration in Creative Industries: M&A in the US Video Game Industry, 2023
(with Ricard Gil and Frederic Warzynski)