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Pricing and Multi-Market Contact in the Cable TV Industry

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Abstract

This paper links empirical literature on the use of price as an entry deterring mechanism with literature on the effect of multi-market contact on competition. The analysis uses a dataset of cable TV system prices to provide evidence that incumbent cable TV firms use price to deter entry by telecom overbuilders as well as cities with municipal utilities. There is also some evidence that multi-market contact with telecom overbuilders results in lower prices. However, there is no evidence that incumbents use price to deter cable overbuilders. In addition to linking entry deterrence with multi-market contact, this study has two other unique features. First, it establishes entry deterrence using two techniques, one of which relies on theory by Ellison and Ellison (2008) on non-monotonic price decreases in response to entry probability. Second, it uses detailed price and channel data at the service tier level.

Suggested Citation

  • Robert Seamans, 2008. "Pricing and Multi-Market Contact in the Cable TV Industry," Working Papers 08-13, NET Institute.
  • Handle: RePEc:net:wpaper:0813
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    File URL: http://www.netinst.org/Seamans_08-13.pdf
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    References listed on IDEAS

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    1. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-459, March.
    2. Stefano DellaVigna & Ethan Kaplan, 2007. "The Fox News Effect: Media Bias and Voting," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 1187-1234.
    3. Austan Goolsbee & Chad Syverson, 2008. "How Do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1611-1633.
    4. 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.
    5. Hauge, Janice A. & Jamison, Mark A. & Gentry, Richard J., 2008. "Bureaucrats as entrepreneurs: Do municipal telecommunications providers hinder private entrepreneurs," Information Economics and Policy, Elsevier, vol. 20(1), pages 89-102, March.
    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.
    7. Leemore S. Dafny, 2005. "Games Hospitals Play: Entry Deterrence in Hospital Procedure Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(3), pages 513-542, September.
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    More about this item

    Keywords

    price; entry; public enterprises; multi-market contact;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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