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Vertical Integration, Market Foreclosure, and Consumer Welfare in the Cable Television Industry

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  • Tasneem Chipty

Abstract

I examine the effects of vertical integration between programming and distribution in the cable television industry. I assess the effects of ownership structure on program offerings, prices, and subscriptions, and I compare consumer welfare across integrated and unintegrated markets. The results of this analysis suggest two general conclusions. First, integrated operators tend to exclude rival program services, suggesting that certain program services cannot gain access to the distribution networks of vertically integrated cable system operators. Second, vertical integration does not harm, and may actually benefit, consumers because of the associated efficiency gains.

Suggested Citation

  • Tasneem Chipty, 2001. "Vertical Integration, Market Foreclosure, and Consumer Welfare in the Cable Television Industry," American Economic Review, American Economic Association, vol. 91(3), pages 428-453, June.
  • Handle: RePEc:aea:aecrev:v:91:y:2001:i:3:p:428-453
    Note: DOI: 10.1257/aer.91.3.428
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    References listed on IDEAS

    as
    1. Mullin, Joseph C & Mullin, Wallace P, 1997. "United States Steel's Acquisition of the Great Northern Ore Properties: Vertical Foreclosure or Efficient Contractual Governance?," Journal of Law, Economics, and Organization, Oxford University Press, vol. 13(1), pages 74-100, April.
    2. Waterman, David & Weiss, Andrew A., 1996. "The effects of vertical integration between cable television systems and pay cable networks," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 357-395.
    3. Robert N. Rubinovitz, 1993. "Market Power and Price Increases for Basic Cable Service Since Deregulation," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 1-18, Spring.
    4. Westfield, Fred M, 1981. "Vertical Integration: Does Product Price Rise or Fall?," American Economic Review, American Economic Association, vol. 71(3), pages 334-346, June.
    5. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-142, March.
    6. Grimm, Curtis M & Winston, Clifford & Evans, Carol A, 1992. "Foreclosure of Railroad Markets: A Test of Chicago Leverage Theory," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 295-310, October.
    7. Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 345-356.
    8. Herman C. Quirmbach, 1986. "Vertical Integration: Scale Distortions, Partial Integration, and the Direction of Price Change," The Quarterly Journal of Economics, Oxford University Press, vol. 101(1), pages 131-147.
    9. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-676, September.
    10. Willig, Robert D, 1976. "Consumer's Surplus without Apology," American Economic Review, American Economic Association, vol. 66(4), pages 589-597, September.
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    More about this item

    JEL classification:

    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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