Competition and the price of municipal cable television services: An empirical study

This paper investigates the effect of competition in the provision of cable television services on social welfare. We develop a simple theoretical model that suggests that competition will be welfare enhancing so long as it results in lower market prices. We empirically test for the presence of this condition by estimating a five equation system: First, the local franchising authority is viewed as self-selecting into a competitive or non-competitive environment in order to maximize its rents. Given this selection, the remaining four equations specify basic service and pay service penetration rate and price equations. Following Mayo and Otsuka (1991), the resulting system is estimated by two-stage least squares. We find that competition among suppliers lowers average basic cable rates by about $3.85 and the typical pay service rate by about $1.10, certis paribus. Mutatis mutandis estimates of these effects imply that monopoly franchising of cable service results in roughly $3.6 billion per year national welfare loss.