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The effect of satellite entry on cable television prices and product quality
Author(s) -
Chu Chenghuan Sean
Publication year - 2010
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2010.00119.x
Subject(s) - counterfactual thinking , quality (philosophy) , competition (biology) , economic surplus , product (mathematics) , business , cable television , industrial organization , microeconomics , economics , telecommunications , computer science , market economy , welfare , ecology , philosophy , geometry , mathematics , epistemology , biology
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.