Dividing Bundled Surplus: The Case of the Cable Television Industry

25 Pages Posted: 7 Jan 2009

See all articles by Nodir Adilov

Nodir Adilov

Purdue University Fort Wayne

Peter J. Alexander

Federal Communications Commission

Brendan Michael Cunningham

U.S. Naval Academy; Eastern Connecticut State University

Date Written: January 7, 2009

Abstract

A cable operator chooses to bundle or provide programs 'a la carte by striking a balance between the incentive to maximize total surplus and minimize transfer payments to program providers. Importantly, a cable operator's decision to bundle or provide programs 'a la carte maximizes total producer surplus if the cable operator's bargaining power (i.e., capacity to extract a greater share of surplus in negotiations with program suppliers) is sufficiently high. However, a cable operator in a weak bargaining position might strategically choose to bundle or unbundle viewer channels in order to enhance its bargaining position with individual program suppliers, even when this decision reduces total surplus. Thus, it is plausible that regulations which cap the market share or impose 'a la carte on cable operators may reduce total surplus.

Keywords: Bundling, division of surplus, Nash bargaining

JEL Classification: C7, C78, D21, L82, L40

Suggested Citation

Adilov, Nodir and Alexander, Peter J. and Cunningham, Brendan Michael and Cunningham, Brendan Michael, Dividing Bundled Surplus: The Case of the Cable Television Industry (January 7, 2009). Available at SSRN: https://ssrn.com/abstract=1324175 or http://dx.doi.org/10.2139/ssrn.1324175

Nodir Adilov (Contact Author)

Purdue University Fort Wayne ( email )

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Peter J. Alexander

Federal Communications Commission ( email )

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Brendan Michael Cunningham

Eastern Connecticut State University ( email )

Willimantic, CT 06226
United States

U.S. Naval Academy ( email )

Department of Economics
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