Study Examines Concentration In The Cable Television Industry
A new study on the cable television industry and ownership limits shows that a cable operator that serves 27 percent of the multichannel video programming distributors (MVPDs) market is as powerful as one that serves 51 percent of the market.
UNIVERSITY PARK, PA-A new study on the cable television industry and ownership limits shows that a cable operator that serves 27 percent of the multichannel video programming distributors (MVPDs) market is as powerful as one that serves 51 percent of the market.
That's one of the conclusions in the paper, "Horizontal Concentration in the Cable Television Industry: An Experimental Analysis," that was co-authored by Anthony Kwasnica, assistant professor of management science in the Penn State Smeal College of Business. The study is part of the Federal Communications Commission Office of Plans and Policy Working Paper Series and was co-authored with Mark M. Bykowsky and William Sharkey of the FCC.
The paper employs economic theory and experimental economics to shed light on the effects 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 the affiliate feeds buyers - cable operators and direct broadcast satellite service provider (DBS) - pay programming networks. Kwasnica's research in the Smeal College of Business involves the use of game theory and experimental economics to study various institutions, as well as research on auction design including studying the viability of collusion in different environments.
The researchers also found that there is a statistically significant decrease in the DBS operator's bargaining power when two cable operators serve 44 percent and 39 percent of the MVPD market, than when the largest cable operator serves 27 percent of the MVPD market. "A reduction in its bargaining power means the DBS operator can expect to pay higher affiliate fees following the increase in horizontal concentration. The increase in affiliate fees paid by the DBS operator could result in an increase in the subscription fee paid by DBS customers," explains Kwasnica.
The results also indicate that sellers representing the least popular programming networks had difficulty earning a profit in each of the horizontal concentration environments considered. The results indicate that the more popular programming networks were much more likely to earn a profit in each of the horizontal concentration environments.
Another major finding, Kwasnica notes, is when the number of programming networks exceeds the cable operator's channel capacity, higher levels of horizontal concentration led a modest reduction in economic efficiency.
The study's findings might play a role in helping to determine future FCC policy, and Kwasnica feels that another impact will probably be on the use of experimental economics techniques to inform policy the decisions.
"If this is well received, the hope is that the FCC and other agencies will continue to use experiments to inform the debate," says Kwasnica.
For more information contact Anthony Kwasnica via e-mail at kwasnica@psu.edu or by phone at 814-863-0542. The full text of the paper is available at either www.fcc.gov/opp/ or www.fcc.gov/mb/ .
