Quality Overprovision in Cable Television Markets
Gregory S. Crawford
- American Economic Review (Forthcoming)
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 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.
Forthcoming Article Downloads