Working Paper: NBER ID: w21832
Authors: Gregory S. Crawford; Robin S. Lee; Michael D. Whinston; Ali Yurukoglu
Abstract: We investigate the welfare effects of vertical integration of regional sports networks (RSNs) with programming distributors in U.S. multichannel television markets. Vertical integration can enhance efficiency by reducing double marginalization and increasing carriage of channels, but can also harm welfare due to foreclosure and incentives to raise rivals' costs. We estimate a structural model of viewership, subscription, distributor pricing, and affiliate fee bargaining using a rich dataset on the U.S. cable and satellite television industry (2000-2010). We use these estimates to analyze the impact of simulated vertical mergers and divestitures of RSNs on competition and welfare, and examine the efficacy of regulatory policies introduced by the U.S. Federal Communications Commission to address competition concerns in this industry.
Keywords: vertical integration; foreclosure; double marginalization; raising rivals' costs; cable television
JEL Codes: L13; L42; L51; L82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Vertical integration (L22) | Lower prices for consumers (D49) |
| Vertical integration (L22) | Greater channel carriage (L91) |
| RSN carriage (L92) | Integrated distributors' pricing (L11) |
| Vertical integration (L22) | Foreclosure of rival distributors (L42) |
| Program access rules enforced (K40) | Significant gains in consumer and aggregate welfare (D69) |
| Non-enforcement of program access rules (P37) | Welfare loss of approximately 12% of consumer willingness to pay for RSNs (D69) |
| Vertical integration (L22) | Statistically significant positive welfare impacts (D60) |