The welfare effects of endogenous quality choice in cable television markets

Gregory Crawford, Oleksandr Shcherbakov and Matthew Shum ()

No 202, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: We measure the welfare consequences of endogenous quality choice in imperfectly competitive markets. We introduce the concept of a "quality markup" and measure the relative importance for welfare of market power over price versus market power over quality. For U.S. cable-television markets between 1997-2006, we find that prices are 33% to 74% higher and qualities 23% to 55% higher than socially optimal. This "quality inflation" contradicts classic results in the literature and reflects our flexible specification of consumer preferences. Furthermore, we find market power over quality is responsible for 54% of the total welfare change from endogenous prices and qualities.

Keywords: Industrial organization; endogenous quality; imperfect competition; monopoly; cable television; quality distortions; welfare; quality markup (search for similar items in EconPapers)
JEL-codes: C51 L13 L15 L82 L96 (search for similar items in EconPapers)
Date: 2015-08
New Economics Papers: this item is included in nep-com, nep-dcm, nep-ind and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:202

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