Vertical integration and product market competition: Evidence from the Spanish local TV industry

Abstract

This paper empirically examines the relation between product market competition and vertical integration in the Spanish local TV industry. For this reason, I use a data set of Spanish local TV stations that provides station level information on vertical integration and product market competition, as well as other station and market characteristics, for the years 1996, 1999 and 2002. During this period, changes in regulation in this industry had a strong impact on the level of market competition faced by local TV stations. I use differences in market structure across markets and years to empirically study the relation between vertical integration and competition. My results show that there exists a negative relation between vertical integration and market competition. I also find that despite the fact that private stations are less likely to integrate content production, they are more likely to do so the higher the number of competing stations in their coverage area. Private stations do so because by increasing the percentage of content produced in-house they differentiate themselves from competition and therefore soften competition and maximize profits.market competition; local TV Industry; product; vertical integration;