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The effect of satellite entry on cable television prices and product quality

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  • Chenghuan Sean Chu

Abstract

How has the entry of satellite television affected the pricing and product quality of incumbent cable firms' programming packages? I estimate a model in which firms compete over both price and product quality (as determined by what channels are offered). Satellite entry typically causes cable firms to raise quality and lower price. However, in some markets, cable optimally responds by raising both price and quality or by lowering both price and quality. A counterfactual scenario that eliminates quality competition results in, on average, softer price competition and lower aggregate consumer surplus, but greater surplus for consumers with weaker preferences for quality. Copyright (c) 2010, RAND..

Suggested Citation

  • Chenghuan Sean Chu, 2010. "The effect of satellite entry on cable television prices and product quality," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 730-764.
  • Handle: RePEc:bla:randje:v:41:y:2010:i:4:p:730-764
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    6. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    7. Julie Holland Mortimer, 2007. "Price Discrimination, Copyright Law, and Technological Innovation: Evidence from the Introduction of DVDs," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 1307-1350.
    8. Besanko, David & Donnenfeld, Shabtai & White, Lawrence J, 1988. "The Multiproduct Firm, Quality Choice, and Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 411-429, June.
    9. Crawford, Gregory S & Shum, Matthew, 2007. "Monopoly Quality Degradation and Regulation in Cable Television," Journal of Law and Economics, University of Chicago Press, vol. 50(1), pages 181-219, February.
    10. Corts, Kenneth S, 1995. "Regulation of a Multi-product Monopolist: Effects on Pricing and Bundling," Journal of Industrial Economics, Wiley Blackwell, vol. 43(4), pages 377-397, December.
    11. Thomas W. Hazlett & Matthew L. Spitzer, 1997. "Public Policy toward Cable Television," Books, American Enterprise Institute, number 53139, September.
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    Cited by:

    1. Ying Fan, 2013. "Ownership Consolidation and Product Characteristics: A Study of the US Daily Newspaper Market," American Economic Review, American Economic Association, vol. 103(5), pages 1598-1628, August.
    2. Miguel González-Maestre & Francisco Martínez-Sánchez, 2015. "Quality choice and advertising regulation in broadcasting markets," Journal of Economics, Springer, vol. 114(2), pages 107-126, March.
    3. Marini, Marco A., 2016. "Collusive Agreements in Vertically Differentiated Markets," MPRA Paper 75369, University Library of Munich, Germany.
    4. repec:bla:jindec:v:65:y:2017:i:3:p:510-558 is not listed on IDEAS
    5. Crawford, Gregory S. & Shcherbakov, Oleksandr & Shum, Matthew, 2015. "The Welfare Effects of Endogenous Quality Choice in Cable Television Markets," CEPR Discussion Papers 10793, C.E.P.R. Discussion Papers.
    6. David P. Byrne & Susumu Imai & Vasilis Sarafidis & Masayuki Hirukawa, 2015. "Instrument-free Identification and Estimation of Differentiated Products Models," Working Paper Series 26, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    7. T. Randolph Beard, Jeffrey T. Macher, John W. Mayo, . "'Can you Hear Me Now?' Exit, Voice and Loyalty Under Increasing Competition," Journal of Law and Economics, University of Chicago Press, vol. 58(3).
    8. R. Scott Hiller, 2016. "The importance of quality: How music festivals achieved commercial success," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 40(3), pages 309-334, August.

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