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

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..

The Economics of Television and Online Video Markets

“…They find reducing satellite penetration to the minimum observed in their data would be associated with a 15% increase in cable prices. Chu (2010) …”

“…Goolsbee and Petrin (2004), Chu (2010), and Crawford and Yurukoglu (2012) are the most recent and comprehensive empirical papers analyzing demand for pay television bundles. 72 I summarize here CY as it builds demand for bundles from heterogeneous preferences for individual channels.…”

Endogenous product choice: A progress report

“…22 In other settings, the set of products cannot easily be changed (or cannot easily be modeled) and the analysis focuses on the continuous choice of one or more product characteristics. Examples of this type of analysis include Gandhi, Froeb, Tschantz and Werden (2008), Chu (2010), Fan (2010), and Byrne (2011). 23 CSS combines both of these approaches, endogenizing both the number of products offered and their characteristics.…”

“…20 This literature can roughly be divided into three branches. The first, earliest, branch searched for reduced-form evidence that the product characteristics offered by firms either were influenced by market power (McManus (2007)) or responded to plausibly exogenous changes in it (Berry and Waldfogel (2001), 17 The CSS approach differs from related work by Chu (2010) by endogenizing the number of products offered by systems, introducing quality markups, and measuring the relative welfare effects of market power over quality versus market power over price.…”

The Welfare Effects of Endogenous Quality Choice in Cable Television Markets

“…For each offered bundle, we observe the price charged, its market share, and the television networks it offers. Following previous work in this literature (Chu (2010), Shcherbakov (2012)), we use a weighted total number of television networks in a bundle as our measure of quality for that bundle, with weights for each channel given by the national average input costs paid by cable systems for that channel. 8 We also observe (at the market level) variables that shift demand and costs across markets.…”