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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 15 behavior, the latter prediction, if found to be true, is indicative of cable’s efficient business strategy. NETDUMMY, INDDUMMY, AGE_S and SHARE_S were used to test whether systems were more or less likely to drop network affiliated, older and/or more popular stations. 21 Still another variable that provides us with a clear test of the anti-competitive theory for local signal denial is DIFF_ADI, a dummy variable indicating if a station was located in a different ADI from a cable system. The must-carry rules often resulted in systems carrying stations from an ADI different from that of a system. These stations from a different ADI were often duplicate network affiliates. If a cable operator denies carrying a station with the intention to economically hurt the station, the operator would be more likely to do so to a station with whom it competes most, that is, a station closet to the system (Wirth, 1990). On the other hand, the dropping of an independent or a duplicate network affiliate station from another ADI can hardly be regarded as anti- competitive. Finally, interaction terms between DIFF_ADI and the station-type dummy variables (DIFF_NET and DIFF_IND) were also included in the models to test if a station with a particular affiliation status from a different ADI was even more (or less) likely to be carried. Market-level variables The market-level variables include the number of stations available in a system’s ADI (OTA_A), the market rank of a system’s ADI (RANK_C) and the per capital retail sales in a cable system’s county (RETAIL_C). One of the reasons for cable subscription is to improve reception quality of over- the-air broadcasting signals. Thus, we would always expect cable systems to carry some broadcast stations available in the local market. However, the more stations that are 21 For NETDUMMY and INDDUMMY, PBSDUMMY is the baseline category for comparison.

Authors: Yan, Zhaoxu.
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Must carry rules
15
behavior, the latter prediction, if found to be true, is indicative of cable’s efficient
business strategy. NETDUMMY, INDDUMMY, AGE_S and SHARE_S were used to test
whether systems were more or less likely to drop network affiliated, older and/or more
popular stations.
21
Still another variable that provides us with a clear test of the anti-competitive
theory for local signal denial is DIFF_ADI, a dummy variable indicating if a station was
located in a different ADI from a cable system. The must-carry rules often resulted in
systems carrying stations from an ADI different from that of a system. These stations
from a different ADI were often duplicate network affiliates. If a cable operator denies
carrying a station with the intention to economically hurt the station, the operator would
be more likely to do so to a station with whom it competes most, that is, a station closet
to the system (Wirth, 1990). On the other hand, the dropping of an independent or a
duplicate network affiliate station from another ADI can hardly be regarded as anti-
competitive. Finally, interaction terms between DIFF_ADI and the station-type dummy
variables (DIFF_NET and DIFF_IND) were also included in the models to test if a
station with a particular affiliation status from a different ADI was even more (or less)
likely to be carried.
Market-level
variables
The market-level variables include the number of
stations available in a system’s ADI (OTA_A), the market rank of a system’s ADI
(RANK_C) and the per capital retail sales in a cable system’s county (RETAIL_C).
One of the reasons for cable subscription is to improve reception quality of over-
the-air broadcasting signals. Thus, we would always expect cable systems to carry some
broadcast stations available in the local market. However, the more stations that are
21
For NETDUMMY and INDDUMMY, PBSDUMMY is the baseline category for comparison.


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