The Welfare Effects of Bundling in Multichannel Television Markets

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