Post-Merger Bundling in the Cable Industry: The Case of Time Warner and Turner Broadcasting

Levis, Sarah Amanda

"The cable industry consists of both upstream and downstream firms: the Cable Television Programming Service Providers (CTPSPs) and the Multichannel Service Operators (MSOs). The CTPSPs create and provide basic cable programming to MSOs in exchange for monthly per-subscriber fees; they also receive funding from advertisers (JRANK Encyclopedia).MSOs purchase franchise rights to operate in specific regions, where they act as monopoly providers of cable, providing subscribers with their choice of programming bundle for a monthly fee. In this paper, I look at the effects upstream bundling may have on subscribers. Gregory Crawford shows that downstream bundling of highly sought-after programming lowers subscriber surplus but raises profits for the cable providers (Crawford 2006). However, a model allowing for differentiated consumer preferences reveals that the price-discriminatory effects of bundling while Michael Whinston emphasizes that bundling independent goods is an effective and profitable means for deterring entry (Whinston 1990), my model points to a somewhat counterintuitive outcome: product bundling can, at times, facilitate market entry by competitors and improve the welfare of consumers. My approach supports MSOs purchase franchise rights to operate in may in fact raise consumer surplus. Indeed, previous research conducted by Whinston that models heterogeneous preferences for one monopoly good that is tied to another monopoly good in a market that faces entry. My contribution is an evaluation of the effect of bundling on entry deterrence in light of heterogeneous preferences for both goods. My model also applies the theoretical aspects of bundling to a specific case in the cable industry; the Time Warner-Turner merger finalized in September of 1996 et al., Complaint, 1997) serves as both an illustration and inspiration for my model.."--from page 198-199


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The Journal of Politics and Society

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Helvidius Group of Columbia University
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February 11, 2014