The Welfare Effects of Vertical Integration in Multichannel Television Markets

81 Pages Posted: 18 Apr 2016 Last revised: 6 Nov 2017

See all articles by Gregory S. Crawford

Gregory S. Crawford

University of Zurich - Department of Economics

Robin S. Lee

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Michael D. Whinston

Sloan School of Management and Department of Economics

Ali Yurukoglu

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

Date Written: March 2016

Abstract

We investigate the welfare effects of vertical integration of regional sports networks (RSNs) with programming distributors in U.S. multichannel television markets. Vertical integration can enhance efficiency by reducing double marginalization and increasing carriage of channels, but can also harm welfare due to foreclosure and incentives to raise rivals' costs. We estimate a structural model of viewership, subscription, distributor pricing, and affiliate fee bargaining using a rich dataset on the U.S. cable and satellite television industry (2000-2010). We use these estimates to analyze the impact of simulated vertical mergers and divestitures of RSNs on competition and welfare, and examine the efficacy of regulatory policies introduced by the U.S. Federal Communications Commission to address competition concerns in this industry.

Keywords: cable television, double marginalization, foreclosure, vertical integration

JEL Classification: L13, L42, L51, L82

Suggested Citation

Crawford, Gregory S. and Lee, Robin S. and Whinston, Michael D. and Yurukoglu, Ali, The Welfare Effects of Vertical Integration in Multichannel Television Markets (March 2016). CEPR Discussion Paper No. DP11202. Available at SSRN: https://ssrn.com/abstract=2766530

Gregory S. Crawford (Contact Author)

University of Zurich - Department of Economics ( email )

Sch├Ânberggasse 1
Z├╝rich, CH-8001
Switzerland

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

Robin S. Lee

Harvard University - Department of Economics ( email )

1805 Cambridge St.
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Michael D. Whinston

Sloan School of Management and Department of Economics ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

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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