Regulation in the cable televisión industry

Abstract

Beyond any political implications surrounding the regulation of media, the purpose of this work is to study the mechanism through which prices of channels are set in the television industry and to analyse the impact that measures which attempt to disolute big media corporations may have on total producer surplus. Following much of the literature that exists on this subject, we model the TV industry by means of a chain of production in which two program providers, the upstream firms, sell their channels to one monopolistic cable operator, the downstream firm. We do not allow for competition between upstream firms to avoid technicalities regarding product differentiation (for more on oligopolistic competition between upstream firms, see Bourreau, Hombert et al. 2010); instead, we think of each channel as unique and each program provider as a monopoly of the content it sells. We do allow for heterogeneity in the consumers´ valuation for each channel. Under this setting, we study how the interaction between the members of the chain and the prices they set is affected when firms that are initially integrated are obliged to desintegrate. As we shall see, one of the consequences that we will encounter is the well-known vertical externality of double marginalization, first introduced and studied by Cournot (1838)-Spengler (1950).