“The Welfare Effects of Monopoly Quality Choice: The Case of Cable Television” by Matthew SHUM
Johns Hopkins University
Gregory S. CRAWFORD
University of Arizona
The purpose of this paper is to measure the econometric and economic consequences of endogenous quality choice by a multiproduct monopolist. Demonstrating that well-known techniques from the optimal screening literature used in the theoretical analysis of nonlinear pricing map naturally to the empirical analysis of differentiated product markets, we apply the generalized one-dimensional screening model of Rochet and Stole (2002) to analyze price and quality choice for Basic cable television services. Our results suggest significant degradation in product quality relative to first-best levels, the consumer and social welfare consequences of which appear to be roughly half that from monopoly pricing.