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.
Authors
Matthew Shum
Research Associate University of Zurich
Greg Crawford is a Research Associate of the IFS, a Research Fellow at the CEPR and a Professor of Economics at the University of Zurich .
University of Mannheim
Report details
- Publisher
- IFS
Suggested citation
G, Crawford and O, Shcherbakov and M, Shum. (2019). Quality Overprovision in Cable Television Markets. London: IFS. Available at: https://ifs.org.uk/publications/quality-overprovision-cable-television-markets (accessed: 28 March 2024).
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