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The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable TV

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Author Info
Austan Goolsbee
Amil Petrin

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Abstract

This paper examines direct broadcast satellites (DBS) as a competitor to cable. We first estimate a structural consumer level demand system for satellite, basic cable, premium cable and local antenna using micro data on almost 30 ,000 households in 317 markets, including extensive controls for unobserved product quality and allowing the distribution of unobserved tastes to follow a fully flexible multivariate normal distribution. The estimated elasticity of expanded basic is about -1 .5 , with the demand for premium cable and DBS more elastic. The results identify strong correlations in the taste for different products not captured in conventional logit models. Estimates of the supply response of cable suggest that without DBS entry cable prices would be about 15 percent higher and cable quality would fall. We find a welfare gain of between $127 and $190 per year (aggregate $2.5 billion) for satellite buyers, and about $50 (aggregate $3 billion) for cable subscribers. Copyright The Econometric Society 2004.

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File URL: http://hdl.handle.net/10.1111/j.1468-0262.2004.00494.x
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Publisher Info
Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 72 (2004)
Issue (Month): 2 (03)
Pages: 351-381
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Handle: RePEc:ecm:emetrp:v:72:y:2004:i:2:p:351-381

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  5. Austan Goolsbee & Peter J. Klenow, 2006. "Valuing Consumer Products by the Time Spent Using Them: An Application to the Internet," American Economic Review, American Economic Association, vol. 96(2), pages 108-113, May. [Downloadable!]
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  6. Matthew Gentzkow, 2007. "Valuing New Goods in a Model with Complementarity: Online Newspapers," American Economic Review, American Economic Association, vol. 97(3), pages 713-744, June. [Downloadable!]
  7. Lesley Chiou & Joan Walker, 2005. "Masking Identification of Discrete Choice Models under Simulation Methods," Occidental Economics Working Papers 5, Occidental College, Department of Economics, revised May 2006. [Downloadable!]
  8. Davis, Peter J, 2006. "The Discrete Choice Analytically Flexible (DCAF) Model of Demand for Differentiated Products," CEPR Discussion Papers 5880, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Yongmin Chen & Scott J. Savage, 2007. "The Effects Of Competition On The Price For Cable Modem Internet Access," Working Papers 07-13, NET Institute, revised Sep 2007. [Downloadable!]
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  12. Chenghuan Sean Chu, 2008. "The effect of satellite entry on product quality for cable television," Finance and Economics Discussion Series 2008-12, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  13. Dong Chen & David Waterman, 2007. "Vertical Ownership, Program Network Carriage, and Tier Positioning in Cable Television: An Empirical Study," Review of Industrial Organization, Springer, vol. 30(3), pages 227-251, May. [Downloadable!] (restricted)
  14. Amil Petrin & James Levinsohn, 2005. "Measuring Aggregate Productivity Growth Using Plant-Level Data," Working Papers 552, Research Seminar in International Economics, University of Michigan. [Downloadable!]
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  15. Jeremy Greenwood & Karen A. Kopecky, 2007. "Measuring the Welfare Gain from Personal Computers," Economie d'Avant Garde Research Reports 15, Economie d'Avant Garde. [Downloadable!]
  16. Amil Petrin & Kenneth Train, 2003. "Omitted Product Attributes in Discrete Choice Models," NBER Working Papers 9452, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Hiroshi Ohashi, 2008. "How to Measure the Outcome of Innovations: Application to Product Innovations," CIRJE F-Series CIRJE-F-555, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  18. Lesley Chiou, 2005. "Empirical Analysis of Retail Competition: Spatial Differentiation at Wal-Mart, Amazon.com, and Their Competitors," Occidental Economics Working Papers 3, Occidental College, Department of Economics, revised Nov 2006. [Downloadable!]
  19. Jeremy Greenwood & Karen A. Kopecky, 2007. "Measuring the Welfare Gain from Personal Computers: A Macroeconomic Approach," NBER Working Papers 13592, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  20. Jonathan Hersh & Joachim Voth, 2009. "Sweet Diversity: Colonial Goods and the Rise of European Living Standards after 1492," Economics Working Papers 1163, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  21. Hal J. Singer & J. Gregory Sidak, 2007. "Vertical Foreclosure in Video Programming Markets: Implications for Cable Operators," Review of Network Economics, Concept Economics, vol. 6(3), pages 372-396, September. [Downloadable!]
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