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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 16 available in a media market, the less marginal benefit the carriage of an additional station would generate and the more likely the system will be to stop carrying one or more local stations in the absence of the must-carry rules. The number of stations available in a system’s ADI (OTA_A) is included to test this effect and is expected to have a positive relationship with local signal carriage denials. RANK_A, the rank of the ADI in which a system is located, is included to indicate the competitiveness between the cable television and broadcasting industries in each television market. It is assumed that the lower the ADI rank, the more competitive the television business. The effect of RANK_A on station carriage can be both positive and negative. First, since households in bigger markets generally have higher reservation utilities with respect to cable subscription due to the availability of more over-the-air broadcast services, a positive effect on DROP would result if cable systems in more competitive markets carry more stations to try to lure television households to subscribe to cable television. However, because the probability of a station not being carried on cable system in bigger markets (with lower rank numbers) is actually higher than those in smaller markets due to the availability of more stations in bigger markets, the effect of RANK_A can be negative. In addition, the anticompetitive theory is more plausible if RANK_A has a negative effect on local station carriage. That is, if cable systems sought to strategically disadvantage local broadcast stations by refusing to carry them, other things held constant, they would have more incentive to do so in more competitive markets. Finally, if it were true that cable systems deny carrying broadcast stations in order to reap local advertising revenues, then one would expect that this happen more often in

Authors: Yan, Zhaoxu.
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Must carry rules
16
available in a media market, the less marginal benefit the carriage of an additional station
would generate and the more likely the system will be to stop carrying one or more local
stations in the absence of the must-carry rules. The number of stations available in a
system’s ADI (OTA_A) is included to test this effect and is expected to have a positive
relationship with local signal carriage denials.
RANK_A, the rank of the ADI in which a system is located, is included to indicate
the competitiveness between the cable television and broadcasting industries in each
television market. It is assumed that the lower the ADI rank, the more competitive the
television business. The effect of RANK_A on station carriage can be both positive and
negative. First, since households in bigger markets generally have higher reservation
utilities with respect to cable subscription due to the availability of more over-the-air
broadcast services, a positive effect on DROP would result if cable systems in more
competitive markets carry more stations to try to lure television households to subscribe
to cable television. However, because the probability of a station not being carried on
cable system in bigger markets (with lower rank numbers) is actually higher than those in
smaller markets due to the availability of more stations in bigger markets, the effect of
RANK_A can be negative. In addition, the anticompetitive theory is more plausible if
RANK_A has a negative effect on local station carriage. That is, if cable systems sought
to strategically disadvantage local broadcast stations by refusing to carry them, other
things held constant, they would have more incentive to do so in more competitive
markets.
Finally, if it were true that cable systems deny carrying broadcast stations in order
to reap local advertising revenues, then one would expect that this happen more often in


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