Demand, pricing, and bundling: An economic analysis of the cable television industry

The purpose of this dissertation is to introduce an economic model of demand and pricing of cable television services that accommodates both the control exercised by cable television systems over the selection and bundling of programming networks into services for sale to consumers and the growth in the number and quality of these programming and services over time. The foundation of the analysis is the introduction of a Discrete-Choice, Differentiated Product model of demand and a multi-product model of monopoly pricing for the set of services offered in a cross-section of cable television markets. Our results find that there is substantial heterogeneity in tastes for the different types of programming offered by cable systems as well as for the different networks making up each type.;We apply these results in two exercises. We first draw on recent results in the analysis of aggregate price indices in differentiated products markets to construct a quality-adjusted price index designed to measure consumer benefits from increases in programming and services over time. We find that failing to account for these benefits yields predicted price increases comparable with those reported by the Cable Television Services component of the Consumer Price Index. When incorporated into the analysis, however, increases in the services offered by systems, increases in the programming offered on those services, and increases in consumer tastes for that programming yield a composite index which predicts aggregate price declines.;We then evaluate the consumer benefits from the regulations imposed by the 1992 Cable Act and explore alternatives to these regulations. We find that the rules imposed by the Act have largely not been enforced and that the consequent welfare gains predicted by the legislation have failed to materialize. Untying the purchase of Basic Cable Service from the purchase of all additional services offered in each cable market, however, increases consumer welfare and is equivalent, on average, to an approximate 18% reduction in Basic Cable Service prices. This is interestingly of comparable magnitude with the price reduction mandated by the Cable Act.