DP11202 The Welfare Effects of Vertical Integration in Multichannel Television Markets

Author(s): Gregory S. Crawford, Robin S. Lee, Michael Whinston, Ali Yurukoglu
Publication Date: March 2016
Date Revised: November 2017
Keyword(s): cable television, double marginalization, foreclosure, vertical integration
JEL(s): L13, L42, L51, L82
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11202

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.