The Welfare Effects of Bundling in Multichannel Television Markets

67 Pages Posted: 4 May 2011

See all articles by Gregory S. Crawford

Gregory S. Crawford

University of Zurich - Department of Economics

Ali Yurukoglu

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Date Written: April 2011

Abstract

We measure how the bundling of television channels affects short-run social welfare. We estimate an industry model of viewership, demand, pricing, bundling, and input market bargaining using data on ratings, purchases, prices, bundle composition, and aggregate input costs. We conduct counterfactual simulations of a la carte policies that require distributors to offer individual channels for sale to consumers. We estimate that negotiated input costs rise by 103.0% in equilibrium under a la carte. These are passed on as higher prices, offsetting consumer surplus benefits from purchasing individual channels. Mean consumer and total surplus change by an estimated -5.4% to 0.2% and -1.7% to 6.0%, respectively. Any implementation or marketing costs would reduce both, and would likely make a la carte welfare-decreasing.

Keywords: a la carte, bargaining, bundling, cable, counterfactual, econometrics, multichannel, nash product, pay, policy, price discrimination, regulation, satellite, structural estimation, television

JEL Classification: C31, C72, L50, L82

Suggested Citation

Crawford, Gregory S. and Yurukoglu, Ali, The Welfare Effects of Bundling in Multichannel Television Markets (April 2011). CEPR Discussion Paper No. DP8370, Available at SSRN: https://ssrn.com/abstract=1830988

Gregory S. Crawford

University of Zurich - Department of Economics ( email )

Schönberggasse 1
Zürich, CH-8001
Switzerland

HOME PAGE: http://www.econ.uzh.ch/faculty/groupcrawford.html

Ali Yurukoglu

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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