Essays in cable television
Abstract
This article presents empirical evidence concerning the effects of nearby competitors as a means of controlling natural monopoly behavior in the cable television industry. Cable television basic subscription rates have risen at rates exceeding inflation since deregulation in 1984, although not uniformly across the country. As a result of intense consumer lobbying, Congress, in the fall of 1992, passed legislation subjecting cable television to regulation by local governing boards again. This analysis focuses on the Midwest cable television industry, using basic subscription rate data collected from industry sources from 1984 through 1992. While cable television may not seem a likely candidate for testing the contestable market hypothesis due to the large fixed costs involved in wiring the area, many municipalities have arranged their franchise agreements so as to allow for easy transfer of existing assets at "fair market value." The fixed costs are therefore, not inexorably sunk costs. Furthermore, many municipalities have split their franchise areas among several competitors, thus developing a pool of potential entrants already serving portions of the market area. The results of my analysis show that although cable firms have indeed engaged in opportunistic pricing behavior since deregulation, the extent of opportunism is mitigated in several of the markets studied by the presence of potential entrants. This suggests that future franchise decisions by governing boards should incorporate nearby competitors when letting the franchises.
Degree
Ph.D.
Advisors
Kovenock, Purdue University.
Subject Area
Business costs|Economics
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