Estimating the demand for cable service in the U.S. in the presence of measurement error in the data

Abstract This paper looks at the effect of direct broadcast satellite service on the demand for cable service in the United States. To measure the competitive influence of the noncable providers, the Direct Broadcast Satellite (DBS) share of video subscribers in each franchise area is used in modeling the demand for multichannel video programming subscription service. After examining some important econometric issues including the appropriate functional specification, whether the error terms are homoscedastic, and the presence of outliers in the data, data from the 2002 FCC Annual Cable Price Survey are used to estimate the demand for analog and digital cable service. One anomaly arises in the measurement error associated with the DBS penetration variable.

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