The Welfare E ects of Endogenous Quality Choice in Cable Television Markets

Gregory Crawford, Oleksandr Shcherbakov and Matthew Shum ()

No 10793, CEPR Discussion Papers from Centre for Economic Policy Research

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 welfare consequences of market power over price and quality. For U.S. paidtelevision markets during 1997†2006, we find that not only are cable monopolists' prices 33% to 74% higher than marginal costs, but qualities are also 23% to 55% higher than socially optimal and the welfare costs of each are similar in magnitude. Such evidence for "quality inflation" by monopolists is at odds with classic results in the literature.

Keywords: Welfare; Imperfect competition; Monopoly; Endogenous quality; Industrial organization; Cable television; Quality markup; quality distortions (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-cul and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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