Does Clustering by Incumbent Cable Msos Deter Entry by Overbuilders?

Abstract

A large "cluster" of contiguous cable systems might deter entry or induce exit by overbuilders. To date, there is little empirical evidence relating an overbuilder's entry decision to the size of the incumbent multi-system operator's (MSO's) footprint. By examining the variation in overbuild activity across Census block groups (CBGs) in Michigan, I find that an increase in the size of the cluster significantly decreases the probability of overbuild activity when controlling for all other factors that might influence the entry decision. An application of the model predicts that, by forming even larger clusters of geographically contiguous clusters of cable systems, the 2002 merger between AT&T and Comcast will significantly decrease the likelihood of entry by overbuilders in Michigan. To the extent that overbuilders constrain the pricing decision of incumbent MSOs, clustering might yield higher prices for cable television consumers.