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Market Power of Local Cable Television Franchises: Evidence from the Effects of Deregulation

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  • Adam B. Jaffe
  • David M. Kanter

Abstract

The 1989 Cable Act eliminated most price regulation of cable television operators, including the right of municipalities to enforce price terms in franchise agreements. Deregulation was justified, at least partially, by the contention that competition from other entertainment media eliminated any market power of cable franchises. We examine the value at sale of existing cable systems before and after deregulation. Assuming that this value represents the expected present value of future profits, deregulation had the predicted negligible effect on profits in cities with significant broadcast competition. However, profits appear to have increased in areas where the competition from broadcast television was less severe. We explore several explanations for this increase and conclude that significant market power is the most plausible explanation.

Suggested Citation

  • Adam B. Jaffe & David M. Kanter, 1990. "Market Power of Local Cable Television Franchises: Evidence from the Effects of Deregulation," RAND Journal of Economics, The RAND Corporation, vol. 21(2), pages 226-234, Summer.
    • Handle: RePEc:rje:randje:v:21:y:1990:i:summer:p:226-234
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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. Ovtchinnikov, Alexei V., 2016. "Debt decisions in deregulated industries," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 230-254.
    3. Austan Goolsbee & Amil Petrin, 2001. "The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable Television," NBER Working Papers 8317, National Bureau of Economic Research, Inc.
    4. Kasuga, Norihro & Manabu, Shishikura & Masanori, Kondo, 2007. "Platform Competition in Pay-TV Market," MPRA Paper 5694, University Library of Munich, Germany.
    5. Ekelund, Robert B, Jr & Ford, George S & Koutsky, Thomas, 2000. "Market Power in Radio Markets: An Empirical Analysis of Local and National Concentration," Journal of Law and Economics, University of Chicago Press, vol. 43(1), pages 157-184, April.
    6. Gregory S. Crawford, 2014. "Cable Regulation in the Internet Era," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 137-193, National Bureau of Economic Research, Inc.

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