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Horizontal integration for bargaining Power: Evidence from the Cable Television Industry

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  • Tasneem Chipty

Abstract

This paper studies the hypothesis that large firms have more bargaining power with suppliers than do small firms, using data from the cable television industry. Employing techniques from the “new empirical lo,” the effect of owner size on marginal costs is inferred from the effect of owner size on observable product market choices. In the cable industry, the downstream firms decide how many subscriptions of cable to sell and how many channels to offer in the cable package. lf large firms have lower costs than small firms, then large firms should be willing to supply more than small firms, at all prices. The effects of bargaining power are identified separately from the effects of scale economies by exploiting the structure of the cable industry. Scale economies, in the cable industry, are likely to stem from regional size, while bargaining power is likely to stem from national size. By controlling for regional size, estimates of the effect of owner national size on the willingness to supply cable subscriptions and to offer channels indicate that large downstream firms offer significantly more subscriptions and channels at all prices than do small downstream firms. These results provide some of the first systematic, industry‐specific, evidence consistent with the bargaining‐power hypothesis.

Suggested Citation

  • Tasneem Chipty, 1995. "Horizontal integration for bargaining Power: Evidence from the Cable Television Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(2), pages 375-397, June.
  • Handle: RePEc:bla:jemstr:v:4:y:1995:i:2:p:375-397
    DOI: 10.1111/j.1430-9134.1995.00375.x
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    References listed on IDEAS

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    1. Porter, Michael E, 1974. "Consumer Behavior, Retailer Power and Market Performance in Consumer Goods Industries," The Review of Economics and Statistics, MIT Press, vol. 56(4), pages 419-436, November.
    2. Lustgarten, Steven H, 1975. "The Impact of Buyer Concentration in Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 57(2), pages 125-132, May.
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    Cited by:

    1. Gautam Gowrisankaran & Aviv Nevo & Robert Town, 2015. "Mergers When Prices Are Negotiated: Evidence from the Hospital Industry," American Economic Review, American Economic Association, vol. 105(1), pages 172-203, January.
    2. 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.
    3. Yongmin Chen & Scott J Savage, 2011. "The Effects of Competition on the Price for Cable Modem Internet Access," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 201-217, February.
    4. Eric Barrette & Gautam Gowrisankaran & Robert Town, 2020. "Countervailing Market Power and Hospital Competition," NBER Working Papers 27005, National Bureau of Economic Research, Inc.
    5. Rebolledo, Mayra, 2020. "M&A, uncertainty, and bargaining power: Evidence from the German retail sector," CAWM Discussion Papers 116, University of Münster, Münster Center for Economic Policy (MEP).
    6. Alexander Raskovich, 2003. "Pivotal Buyers and Bargaining Position," Journal of Industrial Economics, Wiley Blackwell, vol. 51(4), pages 405-426, December.
    7. Dana, James D., 2012. "Buyer groups as strategic commitments," Games and Economic Behavior, Elsevier, vol. 74(2), pages 470-485.
    8. Davis, Douglas D. & Wilson, Bart J., 2008. "Strategic buyers, horizontal mergers and synergies: An experimental investigation," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 643-661, May.
    9. David Davis, 2014. "Buyer Alliances as Countervailing Power in WIC Infant-Formula Auctions," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(2), pages 121-138, September.
    10. Andrew Stewart Wise & Kiran Duwadi, 2005. "Competition Between Cable Television And Direct Broadcast Satellite: The Importance Of Switching Costs And Regional Sports Networks," Journal of Competition Law and Economics, Oxford University Press, vol. 1(4), pages 679-705.
    11. Heimeshoff, Ulrich & Klein, Gordon J., 2013. "Bargaining power and local heroes," DICE Discussion Papers 87, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    12. Waterman, David, 1996. "Local monopsony and free riders," Information Economics and Policy, Elsevier, vol. 8(4), pages 337-355, December.
    13. David P. Byrne, 2015. "Testing Models Of Differentiated Products Markets: Consolidation In The Cable Tv Industry," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(3), pages 805-850, August.
    14. Gregory Crawford, 2008. "The discriminatory incentives to bundle in the cable television industry," Quantitative Marketing and Economics (QME), Springer, vol. 6(1), pages 41-78, March.
    15. Gregory S. Crawford, 2015. "The economics of television and online video markets," ECON - Working Papers 197, Department of Economics - University of Zurich.
    16. Kasuga, Norihro & Manabu, Shishikura & Masanori, Kondo, 2007. "Platform Competition in Pay-TV Market," MPRA Paper 5694, University Library of Munich, Germany.
    17. Evan Kwerel & Johathan Levy & Robert Pepper & David Sappington & Donald Stockdale & John Williams, 2002. "Economic Issues at the Federal Communications Commission," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 21(4), pages 337-356, December.
    18. Crawford, Gregory, 2015. "The Economics of Television and Online Video Markets," CEPR Discussion Papers 10676, C.E.P.R. Discussion Papers.
    19. LI, Li, 2019. "Cooperative purchasing and preactive inventory sharing – Channel balancing and performance improvement," European Journal of Operational Research, Elsevier, vol. 278(3), pages 738-751.
    20. Zhou, Yuan & Xie, Jinxing, 2014. "Potentially self-defeating: Group buying in a two-tier supply chain," Omega, Elsevier, vol. 49(C), pages 42-52.
    21. Yongqiang Chu & Liying Wang, 2017. "Capital Structure Along the Supply Chain: How Does Customer Leverage Affect Supplier Leverage Decisions?," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 7(04), pages 1-29, December.
    22. 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.
    23. Snyder, Christopher M., 1998. "Why do larger buyers pay lower prices? Intense supplier competition," Economics Letters, Elsevier, vol. 58(2), pages 205-209, February.

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