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The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable Television

  • Austan Goolsbee
  • Amil Petrin

This paper examines the introduction of Direct Broadcast Satellites as an alternative to cable television and the welfare gains such satellites generated for consumers. The extent to which satellites compete with cable has become an important issue in the debate over re-regulation of cable prices. We estimate a consumer level demand system for satellite, basic cable, premium cable and local antenna using extensive micro data on the television choices of more than 15,000 people as well as price and characteristics data on cable companies throughout the nation. The results indicate that, after properly controlling for unobservable product attributes and the endogeneity of prices, the direct welfare gain to satellite buyers averages about $50 dollars per year or approximately $450 million annually in the aggregate. Estimates that do not control for unobserved attributes and endogenous prices overstate the welfare gains by almost a factor of fifteen. The price sensitivity of satellite to both its own price and the price of cable is extremely high. The price sensitivity of cable, however, is low, likely indicating that satellite is not a close substitute at the time of our sample.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8317.

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Date of creation: Jun 2001
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Publication status: published as Goolsbee, Austan and Amil Petrin. "The Consumer Gains From Direct Broadcast Satellites And The Competition With Cable TV," Econometrica, 2004, v72(2,Mar), 351-381.
Handle: RePEc:nbr:nberwo:8317
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  1. Matthew D. Shapiro & David W. Wilcox, 1996. "Mismeasurement in the Consumer Price Index: An Evaluation," NBER Working Papers 5590, National Bureau of Economic Research, Inc.
  2. Ellickson, Bryan, 1979. "Hedonic Theory and the Demand for Cable Television," American Economic Review, American Economic Association, vol. 69(1), pages 183-89, March.
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  4. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
  5. David M. Cutler & Edward L. Glaeser & Jacob L. Vigdor, 1997. "The Rise and Decline of the American Ghetto," NBER Working Papers 5881, National Bureau of Economic Research, Inc.
  6. Crawford, Gregory S., 1997. "New Products, New Programs, and Prices: Measuring ConsumerBenefits to Changes in Cable Television Choices, 1989-1995," Working Papers 97-28, Duke University, Department of Economics.
  7. 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.
  8. Trajtenberg, Manuel, 1989. "The Welfare Analysis of Product Innovations, with an Application to Computed Tomography Scanners," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 444-79, April.
  9. Robin A. Prager, 1990. "Firm Behavior in Franchise Monopoly Markets," RAND Journal of Economics, The RAND Corporation, vol. 21(2), pages 211-225, Summer.
  10. 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.
  11. Zupan, Mark A, 1989. "The Efficacy of Franchise Bidding Schemes in the Case of Cable Television: Some Systematic Evidence," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages 401-56, October.
  12. Park, Rolla Edward, 1971. "The Growth of Cable TV and Its Probable Impact on Over-The-Air Broadcasting," American Economic Review, American Economic Association, vol. 61(2), pages 69-73, May.
  13. 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.
  14. Amil Petrin, 2001. "Quantifying the Benefits of New Products: The Case of the Minivan," NBER Working Papers 8227, National Bureau of Economic Research, Inc.
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