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Competition Vs. Franchise Monopoly In Cable Television

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  • THOMAS W. HAZLETT

Abstract

A modern defense of public utility regulation has arisen from the "transactions costs" literature. Traditional economic theorists called for government to establish regulated, franchise monopolies to guard against over-investment and wasteful duplication in natural monopoly (i.e., cost subadditive) markets. However, the new view is that monopoly licenses are issued to promote investment into markets where suppliers must sink considerable sums of specific…nonsalvageable…capital. Consumers, in this scenario, "delegate" their choice-making to political or bureaucratic agents, who administer day-to-day and year-to-year arrangements with a monopoly producer in a long-term exclusive-dealing arrangement. This may be a plausible explanation for the issuance of legal monopoly rights. But the troubling question regarding the public agency is: why should self-interested political agents create proconsumer regulatory contracts? They might instead be expected to maximize political clout by erecting monopolistic restrictions and directing excess returns to effective distributional coalitions. These competing explanations for the political issuance of monopoly franchises are contrasted in this paper through the use of legal and economic evidence in the cable television industry. Copyright 1986 Western Economic Association International.

Suggested Citation

  • Thomas W. Hazlett, 1986. "Competition Vs. Franchise Monopoly In Cable Television," Contemporary Economic Policy, Western Economic Association International, vol. 4(2), pages 80-97, April.
  • Handle: RePEc:bla:coecpo:v:4:y:1986:i:2:p:80-97
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    1. repec:mes:jeciss:v:10:y:1976:i:1:p:45-61 is not listed on IDEAS
    2. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    3. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
    4. Ekelund, Robert B, Jr & Higgins, Richard S, 1982. "Capital Fixity, Innovations, and Long-Term Contracting: An Intertemporal Economic Theory of Regulation," American Economic Review, American Economic Association, vol. 72(1), pages 32-46, March.
    5. Demsetz, Harold, 1971. "On the Regulation of Industry: A Reply," Journal of Political Economy, University of Chicago Press, vol. 79(2), pages 356-363, March-Apr.
    6. Jarrell, Gregg A, 1978. "The Demand for State Regulation of the Electric Utility Industry," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 269-295, October.
    7. Victor P. Goldberg, 1976. "Regulation and Administered Contracts," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 426-448, Autumn.
    8. Oliver E. Williamson, 1976. "Franchise Bidding for Natural Monopolies -- in General and with Respect to CATV," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 73-104, Spring.
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    Cited by:

    1. Mary T Kelly & John S Ying, 2014. "Testing the Effectiveness of Regulation and Competition on Cable Television Rates," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 40(3), pages 387-404, June.
    2. Diane Bruce Anstine, 2001. "How Much Will Consumers Pay? A Hedonic Analysis of the Cable Television Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 19(2), pages 129-147, September.
    3. Fielding, Gordon J. & Klein, Daniel B., 1993. "How To Franchise Highways," University of California Transportation Center, Working Papers qt79z9x6fs, University of California Transportation Center.

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