The Discriminatory Incentives to Bundle in the Cable Television Industry
40 Pages Posted: 25 Feb 2020
Date Written: July 19, 2005
Abstract
An influential theoretical literature supports a discriminatory explanation for product bundling: it reduces consumer heterogeneity, extracting surplus in a manner similar to 2nd-degree price discrimination. This paper tests this theory and quantifies its importance in the cable television industry. The results provide strong support for the theory and suggest that bundling an average top-15 cable network yields a heterogeneity reduction equal to a 6.0% increase in firm profits (and 5.5% reduction in consumers surplus). The results are robust to alternative explanations for bundling.
Keywords: Bundling, price discrimination, cable television
JEL Classification: L12, M31, L96, L40, L50, C31
Suggested Citation: Suggested Citation
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