Previous studies of the demand for cable television focused exclusively on only one aspect of the demand for cable television and employed limited regression techniques to estimate the demand for cable television services. The theoretical and econometric aspects of the model were usually neglected or not fully developed so that comparison and evaluation of the models could not be easily made. Therefore, there was the need for a study that develops formally the analysis of market structure for the cable television industry and incorporates the recent developments in the cable television industry.^ This study uses microeconomics to forge rigorous predictive links between assumptions about cable television and their behavioral consequences. It attempts to use modern statistical methods to extract appropriate generalizations from data without falling into the pitfalls lining the quantitative paths of previous studies. This study also utilizes historical research on the cable industry to extract from a tangle of institutional details the relevant variables in modeling the demand for cable television services.^ The hypothesis that cable operators practice a self selection process which may introduce a selectivity bias in samples used to estimate the demand for cable was tested using a two equation model. The analysis indicated that selectivity bias was not a significant problem with models of the demand for cable television using 1982 data. Therefore, the predictions derived from this study should generally be valid when cable television enters new markets.^ Cable operators now practice a hybrid form of commodity bundling: A cable subscriber can purchase only basic cable services if he desires; a cable subscriber must purchase basic cable services if he wants to receive pay cable services. That is, pay cable services can only be purchased as a package. The practice of commodity bundling allows its practitioner to extract greater levels of consumer surplus from buyers by packaging products in ways that lower the buyer's price elasticity of demand for components of the package. The practice of commodity bundling while not illegal under present antitrust laws is shown to have effects similar to price discrimination. ^

Subject Area

Economic theory

Recommended Citation

HENRY, PERCIVAL ALOYSIUS, "THE DEMAND FOR CABLE TELEVISION" (1987). ETD Collection for Fordham University. AAI8709229.