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The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable Television

41 Pages Posted: 7 Jun 2001 Last revised: 31 Jan 2015

Austan Goolsbee

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Amil Petrin

University of Minnesota - Duluth; National Bureau of Economic Research (NBER)

Date Written: June 2001

Abstract

This paper examines the introduction of Direct Broadcast Satellites as an alternative to cable television and the welfare gains such satellites generated for consumers. The extent to which satellites compete with cable has become an important issue in the debate over re-regulation of cable prices. We estimate a consumer level demand system for satellite, basic cable, premium cable and local antenna using extensive micro data on the television choices of more than 15,000 people as well as price and characteristics data on cable companies throughout the nation. The results indicate that, after properly controlling for unobservable product attributes and the endogeneity of prices, the direct welfare gain to satellite buyers averages about $50 dollars per year or approximately $450 million annually in the aggregate. Estimates that do not control for unobserved attributes and endogenous prices overstate the welfare gains by almost a factor of fifteen. The price sensitivity of satellite to both its own price and the price of cable is extremely high. The price sensitivity of cable, however, is low, likely indicating that satellite is not a close substitute at the time of our sample.

Suggested Citation

Goolsbee, Austan and Petrin, Amil, The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable Television (June 2001). NBER Working Paper No. w8317. Available at SSRN: https://ssrn.com/abstract=272679

Austan Goolsbee (Contact Author)

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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Amil Petrin

University of Minnesota - Duluth ( email )

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Duluth, MN 55812
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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