Quality Overprovision in Cable Television Markets

44 Pages Posted: 19 Apr 2018 Last revised: 30 Aug 2018

See all articles by Gregory S. Crawford

Gregory S. Crawford

University of Zurich - Department of Economics

Oleksandr Shcherbakov

University of Mannheim

Matthew Shum

California Institute of Technology

Date Written: April 2, 2018

Abstract

We measure the welfare distortions from endogenous quality choice in imperfectly competitive markets. For U.S. cable-television markets between 1997-2006, prices are 33% to 74% higher and qualities 23% to 55% higher than socially optimal. Such quality overprovision contradicts classic results in the literature and our analysis shows that it results from the presence of competition from high-end satellite TV providers: without the competitive pressure from satellite companies, cable TV monopolists would instead engage in quality degradation. For welfare, quality overprovision implies that cable customers would prefer smaller lower quality cable bundles at a lower price, amounting to a twofold increase in consumer surplus for the average consumer.

Suggested Citation

Crawford, Gregory S. and Shcherbakov, Oleksandr and Shum, Matthew, Quality Overprovision in Cable Television Markets (April 2, 2018). Available at SSRN: https://ssrn.com/abstract=3154811 or http://dx.doi.org/10.2139/ssrn.3154811

Gregory S. Crawford

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

Oleksandr Shcherbakov

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Matthew Shum (Contact Author)

California Institute of Technology ( email )

Pasadena, CA 91125
United States

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