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Quality Overprovision in Cable Television Markets

Author

Listed:
  • Gregory S. Crawford
  • Oleksandr Shcherbakov
  • Matthew Shum

Abstract

We measure the welfare distortions from endogenous quality choice in imperfectly competitive markets. For US cable television markets between 1997–2006, prices are 33 percent to 74 percent higher and qualities 23 percent to 55 percent higher than socially optimal. Such quality overprovision contradicts classic results in the literature and our analysis shows that it results from the presence of competition from high-end satellite TV providers: without the competitive pressure from satellite companies, cable TV monopolists would instead engage in quality degradation. For welfare, quality overprovision implies cable customers would prefer smaller, lower-quality cable bundles at a lower price, amounting to a twofold increase in consumer surplus for the average consumer.

Suggested Citation

  • Gregory S. Crawford & Oleksandr Shcherbakov & Matthew Shum, 2019. "Quality Overprovision in Cable Television Markets," American Economic Review, American Economic Association, vol. 109(3), pages 956-995, March.
    • Handle: RePEc:aea:aecrev:v:109:y:2019:i:3:p:956-95
    Note: DOI: 10.1257/aer.20151182
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    Citations

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    Cited by:

    1. Bruneel-Zupanc, Christophe Alain, 2021. "Discrete-Continuous Dynamic Choice Models: Identification and Conditional Choice Probability Estimation," TSE Working Papers 21-1185, Toulouse School of Economics (TSE).
    2. Mathias Reynaert, 2021. "Abatement Strategies and the Cost of Environmental Regulation: Emission Standards on the European Car Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(1), pages 454-488.
    3. Cuntz, Alexander & Bergquist, Kyle, 2022. "Exclusive content and platform competition in Latin America," Information Economics and Policy, Elsevier, vol. 60(C).
    4. Isis Durrmeyer, 2021. "Winners and Losers: The Distributional Effects of the French Feebate on the Automobile Market," Post-Print hal-03514846, HAL.
    5. Craig Garthwaite & Christopher Ody & Amanda Starc, 2020. "Endogenous Quality Investments in the U.S. Hospital Market," NBER Working Papers 27440, National Bureau of Economic Research, Inc.
    6. Garthwaite, Craig & Ody, Christopher & Starc, Amanda, 2022. "Endogenous quality investments in the U.S. hospital market," Journal of Health Economics, Elsevier, vol. 84(C).
    7. Benetton, Matteo & Gavazza, Alessandro & Surico, Paolo, 2021. "Mortgage pricing and monetary policy," Bank of England working papers 936, Bank of England.
    8. Xuan Teng, 2022. "Self-Preferencing, Quality Provision, and Welfare in Mobile Application Markets," CESifo Working Paper Series 10042, CESifo.
    9. Haucap, Justus & Stiebale, Joel, 2023. "Non-price effects of mergers and acquisitions," DICE Discussion Papers 402, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    10. Kuehn, Joseph & Lampe, Ryan, 2023. "Competition and product composition: Evidence from hollywood," International Journal of Industrial Organization, Elsevier, vol. 91(C).

    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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