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Vertical integration and the must carry rules in the cable television industry: An empirical analysis
Unformatted Document Text:  Must carry rules 9 A related issue about the effects of vertical integration on cable programming supply involves horizontal concentration in the cable industry. Refusal to deal by large size firms is more plausible because bigger firms could be expected to profit more from foreclosure (Waterman & Weiss, 1997, pp. 14-15). This implies that vertical foreclosure is more plausible if an integrated firm is also horizontally bigger. Empirical analysis of local signal carriage decisions Hypothesis The previous sections discussed several factors affecting local signal carriage and the possible effects of vertical integration on local signal carriage decisions. However, these factors and the government’s theoretical propositions have seldom been examined in empirical studies because the carriage of local broadcast stations on cable has not been a focus in previous cable studies. 10 This study aims to fill the gap by providing a systematic analysis of the effects of market structural variables on local signal carriage in the cable television industry. It focuses on the effects of vertical integration and the following hypothesis: H 0 : Cable systems owned by cable MSOs that have an ownership interest in a larger number of cable networks are more likely to deny carriage of broadcast signals, all other things equal. Data The main data sources for this study are two electronic databases of Television and Cable Factbook (1991 and 1995, Factbook hereafter). The Factbook contains system-level information about each of the cable systems in the U.S., including, for 10 Previous studies of cable price differentials and carriage decisions with respect to cable program services in the presence of vertical integration show inconsistent results (e.g., Chipty, 2001; Ford & Jackson, 1997; Salinger, 1988; Waterman, 1993, 1996; Waterman & Weiss, 1996). In particular, nonintegrated cable systems do not always pay higher program prices, nor are they systematically denied access to programs affiliated with other system operators.

Authors: Yan, Zhaoxu.
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Must carry rules
9
A related issue about the effects of vertical integration on cable programming
supply involves horizontal concentration in the cable industry. Refusal to deal by large
size firms is more plausible because bigger firms could be expected to profit more from
foreclosure (Waterman & Weiss, 1997, pp. 14-15). This implies that vertical foreclosure
is more plausible if an integrated firm is also horizontally bigger.
Empirical analysis of local signal carriage decisions
Hypothesis
The previous sections discussed several factors affecting local signal carriage and
the possible effects of vertical integration on local signal carriage decisions. However,
these factors and the government’s theoretical propositions have seldom been examined
in empirical studies because the carriage of local broadcast stations on cable has not been
a focus in previous cable studies.
10
This study aims to fill the gap by providing a
systematic analysis of the effects of market structural variables on local signal carriage in
the cable television industry. It focuses on the effects of vertical integration and the
following hypothesis:
H
0
: Cable systems owned by cable MSOs that have an ownership interest
in a larger number of cable networks are more likely to deny carriage
of broadcast signals, all other things equal.
Data
The main data sources for this study are two electronic databases of Television
and Cable Factbook (1991 and 1995, Factbook hereafter). The Factbook contains
system-level information about each of the cable systems in the U.S., including, for
10
Previous studies of cable price differentials and carriage decisions with respect to cable program services
in the presence of vertical integration show inconsistent results (e.g., Chipty, 2001; Ford & Jackson, 1997;
Salinger, 1988; Waterman, 1993, 1996; Waterman & Weiss, 1996). In particular, nonintegrated cable
systems do not always pay higher program prices, nor are they systematically denied access to programs
affiliated with other system operators.


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