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

  • Tasneem Chipty
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    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.

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.91.3.428
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    Article provided by American Economic Association in its journal American Economic Review.

    Volume (Year): 91 (2001)
    Issue (Month): 3 (June)
    Pages: 428-453

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    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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    1. 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.
    2. Westfield, Fred M, 1981. "Vertical Integration: Does Product Price Rise or Fall?," American Economic Review, American Economic Association, vol. 71(3), pages 334-46, June.
    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. Salinger, Michael A, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 345-56, May.
    5. Quirmbach, Herman C, 1986. "Vertical Integration: Scale Distortions, Partial Integration, and the Direction of Price Change," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 131-47, February.
    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. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-42, March.
    8. Willig, Robert D, 1976. "Consumer's Surplus without Apology," American Economic Review, American Economic Association, vol. 66(4), pages 589-97, September.
    9. 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.
    10. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-76, September.
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