Discussion Paper Details

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Title: The Welfare Effects of Vertical Integration in Multichannel Television Markets

Author(s): Gregory S. Crawford, Robin S. Lee, Michael Whinston and Ali Yurukoglu

Publication Date: March 2016

Keyword(s): cable television, double marginalization, foreclosure and vertical integration

Programme Area(s): Industrial Organization

Abstract: We investigate the welfare effects of vertical integration of regional sports networks (RSNs) with programming distributors in U.S. multichannel television markets. Vertical integration can enhance efficiency by reducing double marginalization and increasing carriage of channels, but can also harm welfare due to foreclosure and incentives to raise rivals' costs. We estimate a structural model of viewership, subscription, distributor pricing, and affiliate fee bargaining using a rich dataset on the U.S. cable and satellite television industry (2000-2010). We use these estimates to analyze the impact of simulated vertical mergers and divestitures of RSNs on competition and welfare, and examine the efficacy of regulatory policies introduced by the U.S. Federal Communications Commission to address competition concerns in this industry.

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Bibliographic Reference

Crawford, G, Lee, R, Whinston, M and Yurukoglu, A. 2016. 'The Welfare Effects of Vertical Integration in Multichannel Television Markets'. London, Centre for Economic Policy Research.