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Bundling, product choice, and efficiency: Should cable television networks be offered a la carte?

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  • Crawford, Gregory S.
  • Cullen, Joseph

Abstract

We conduct a numerical analysis of bundling's impact on a monopolist's pricing and product choices and assess the implications for consumer welfare in cable television markets. Existing theory is ambiguous: for a given set of products, bundling likely transfers surplus from consumers to firms but also encourages products to be offered that might not be under a la carte pricing. Simulation of "Full A La Carte" for an economic environment calibrated to an average cable television system suggests that consumers would likely benefit from a la carte sales. If all networks continued to be offered, the average household's surplus is predicted to increase by $6.80 (65.6%) under a la carte sales (despite a total bundle price that almost doubles) and reduced network profits would have to be such that 41 of 50 offered cable networks have to exit the market to make her indifferent. Simulation of a "Theme Tier" scenario provides intermediate benefits. The incremental marginal costs to cable systems of a la carte sales and its impact in the advertising market and on competition are important factors in determining consumer benefits. (JEL L12, L82, L50).

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Bibliographic Info

Article provided by Elsevier in its journal Information Economics and Policy.

Volume (Year): 19 (2007)
Issue (Month): 3-4 (October)
Pages: 379-404

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Handle: RePEc:eee:iepoli:v:19:y:2007:i:3-4:p:379-404

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Web page: http://www.elsevier.com/locate/inca/505549

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Cited by:
  1. Esther Hauk & Giovanni Immordino, 2011. "Parents, Television and Cultural Change," UFAE and IAE Working Papers 868.11, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Hanming Fang & Peter Norman, 2003. "Optimal Provision of Multiple Excludable Public Goods," Cowles Foundation Discussion Papers 1441R, Cowles Foundation for Research in Economics, Yale University, revised Apr 2006.
  3. Hans Jarle Kind & Tore Nilssen & Lars Sørgard, 2010. "Price Coordination in Two-Sided Markets: Competition in the TV Industry," CESifo Working Paper Series 3004, CESifo Group Munich.
  4. Chenghuan Sean Chu & Phillip Leslie & Alan Sorensen, 2011. "Bundle-Size Pricing as an Approximation to Mixed Bundling," American Economic Review, American Economic Association, vol. 101(1), pages 263-303, February.
  5. Li, Minqiang & Feng, Haiyang & Chen, Fuzan & Kou, Jisong, 2013. "Numerical investigation on mixed bundling and pricing of information products," International Journal of Production Economics, Elsevier, vol. 144(2), pages 560-571.

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