Horizontal Concentration in the Cable Television Industry: An Experimental Analysis
Mark Bykowsky, Anthony Kwasnica, and William Sharkey.
OSP Working Paper 35 (July 2002) employs economic theory and experimental economics to shed light on the effect of changes in horizontal concentration among cable operators on the flow of programming to consumers. The study examines the relationship between different levels of horizontal concentration and the level of affiliate fees that buyers (i.e., cable operators and a DBS service provider) pay programming networks. It also evaluates the effect of changes in horizontal concentration on economic efficiency.
The authors find that, when the number of programming networks exceeds the cable operator’s channel capacity, higher levels of horizontal concentration (holding the number of buyers constant) lead to a modest reduction in economic efficiency. They also find, in their experimental economics setting, that the bargaining power of a cable operator serving 27% of the MVPD market does not differ substantially from that of a cable operator serving 51%. Moreover, they find that there is a statistically significant decrease in the DBS operator’s bargaining power when two cable operators serve 44% and 39% of the MVPD market, compared to when the largest cable operator serves 27% of the MVPD market.