New Products, New Programs, and Prices: Measuring Consumer Benefits to Changes in Cable Television Choices, 1989-1995

This paper evaluates the economic,consequences,of quality change,and,new,service introductions in the cable television industry over the period 1989-1995. The analysis is motivated the recent widespread introduction of new, Expanded Basic, cable services and the associated addition and reallocation from existing services of some of the most popular cable programming,to these services. These phenomena constitute increases in the variety and quality of cable television, the benefits of which to consumers is unknown. To address these issues, we develop and estimate a discrete-choic e, differentiate d product model of the United States cable television industry. On the demand side, we depart from existing models of the industry and specify that the building blocks of individual utility in the model are the individual programming,networks,selected by systems,and,bundled,into services for sale to consumers. To the extent individuals value quite highly certain programming,networks – ESPN and The Discovery Channel for example – and less highly others, those services containing more valued networks will command,greater demand. Individual demand,is given by the maximization,of utility over the (discrete) combinationsof services offered in each cable market. Under the assumption that unobserved consumer tastes are distributed as a Type I Extreme Value, these demands are then aggregated over both individuals and unobserved,service combinations,– only total service market shares are observed – to yield market demands,for a panel dataset of heterogeneouscable markets.