Vertical Integration, Market Foreclosure, and Consumer Welfare in the Cable Television Industry

That is the title of a 2001 AER piece by Tasneem Chipty, here is the abstract:

I examine the effects of vertical integration between programming and distribution in the cable television industry. I assess the effects of ownership structure on program offerings, prices, and subscriptions, and I compare consumer welfare across integrated and unintegrated markets. The results of this analysis suggest two general conclusions. First, integrated operators tend to exclude rival program services, suggesting that certain program services cannot gain access to the distribution networks of vertically integrated cable system operators. Second, vertical integration does not harm, and may actually benefit, consumers because of the associated efficiency gains.

Out of date, yes, but still evidence that the proposed AT&T and Time-Warner merger is unlikely to damage the interests of consumers.  When there is some market power at each step along the supply chain, vertical integration typically lowers margins and prices, thereby increasing consumer surplus.

For the pointer I thank John Chilton, who also points us to this review chapter by Paul Joskow.  Here is a good James B. Stewart (NYT) piece on how antitrust thinking is moving backward these days, away from science more toward mood affiliation.


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