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Demand, Pricing, and Regulation: Evidence from the Cable TV Industry

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  • John W. Mayo
  • Yasuji Otsuka

Abstract

Subsequent to the nationwide deregulation of the cable TV industry, a number of questions have been raised concerning the conduct of cable firms. Answers to these questions turn upon a fundamental set of issues regarding the economic relationships of demand, pricing, and regulation. In this article, we empirically examine these relationships for the period prior to deregulation. A number of basic findings emerge. Among these, we find that the demand for basic cable service ranges from being generally inelastic in rural areas to elastic in large urban markets. The elasticity of demand for pay cable services is typically well in excess of unity. Also, while regulation did not lead to economically efficient (marginal cost) prices for basic cable service, it did act to keep prices below monopoly levels. Moreover, our examination reveals some significant differences in the effectiveness of the various types of regulation practiced in the pre-deregulation period.

Suggested Citation

  • John W. Mayo & Yasuji Otsuka, 1991. "Demand, Pricing, and Regulation: Evidence from the Cable TV Industry," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 396-410, Autumn.
  • Handle: RePEc:rje:randje:v:22:y:1991:i:autumn:p:396-410
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    Citations

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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. Robert C. Seamans, 2012. "Fighting City Hall: Entry Deterrence and Technology Upgrades in Cable TV Markets," Management Science, INFORMS, vol. 58(3), pages 461-475, March.
    3. Crawford, Gregory S, 2013. "Cable Regulation in the Internet Era," CEPR Discussion Papers 9316, C.E.P.R. Discussion Papers.
    4. 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.
    5. Crawford, Gregory S., 2013. "Cable Regulation in the Internet Era," The Warwick Economics Research Paper Series (TWERPS) 1004, University of Warwick, Department of Economics.
    6. Agyei Karikari, John & Brown, Stephen M. & Abramowitz, Amy D., 2003. "Subscriptions for direct broadcast satellite and cable television in the US: an empirical analysis," Information Economics and Policy, Elsevier, vol. 15(1), pages 1-15, March.
    7. repec:oup:jcomle:v:1:y:2005:i:4:p:679-705. is not listed on IDEAS
    8. Yasuji Otsuka & Bradley Braun, 2003. "Price Cap Regulation in the Cable Television Industry: Why was the Demand Stagnant?," Journal of Industry, Competition and Trade, Springer, vol. 3(1), pages 41-55, March.
    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. repec:gam:jsusta:v:9:y:2017:i:12:p:2247-:d:122095 is not listed on IDEAS
    11. Nissan, Edward & Naghshpour, Shahdad, 2014. "Costs and Revenues of à la Carte (ALC) Versus Bundling in Television Markets," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 44(1).
    12. Gregory S. Crawford, 2015. "The economics of television and online video markets," ECON - Working Papers 197, Department of Economics - University of Zurich.
    13. Robert Seamans, 2008. "Pricing and Multi-Market Contact in the Cable TV Industry," Working Papers 08-13, NET Institute.
    14. Tomaso Duso & Astrid Jung, 2007. "Market Conduct and Endogenous Lobbying: Evidence from the U.S. Mobile Telecommunications Industry," Journal of Industry, Competition and Trade, Springer, vol. 7(1), pages 9-29, March.
    15. Crawford, Gregory S., 2015. "The Economics of Television and Online Video Markets," CEPR Discussion Papers 10676, C.E.P.R. Discussion Papers.
    16. Alejandro Diaz-Bautista, 2005. "Regional Cluster Analysis in the Mexican Telecommunications Sector. Impact of Economies of Agglomeration, Clusters and networking in medium-sized Mexican Telecommunication firms," Urban/Regional 0511013, EconWPA.

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