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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 4 must carry rules using statistical analysis. Vita (1997) tested the probability of a station not carried by a cable system and found that cable systems selling advertising were actually less likely to drop local stations than non-advertisers. Yan (2002) tested the effects of horizontal concentration, vertical integration and other market variables on the number of local stations not carried on cable systems. He found that horizontal concentration had a negative effect on local signal carriage, but vertical integration did not have any significant effect. However, the study did not include in its empirical models any station level variables such as a station’s ratings. This imposes serious limitation on the study as station-specific variables certainly affect cable operators’ decisions with respect to local signal carriage. 7 In this study, I test the effects of vertical integration and other system-specific, station-specific and market-specific variables on the probability of a local television station being carried by a cable system. In the following sections, I first describe the economic rational for the must carry rules and examine the often-neglected incentives that cable operators may have in their carriage decisions concerning local stations. I then discuss the possible effects of structural factors such as vertical integration on cable local signal carriage decisions. Next, I describe the empirical models and methodology of the empirical analysis. Finally, I present the study’s results and discuss their policy implications. The economics of local signal carriage decisions Economic (dis)incentives of local signal carriage The government built its must carry cases around an anticompetitive theory that 7 Other studies that have provided an economic perspective, but not empirical analysis, to the must carry issues include Vita & Wiegand (1993) and Wirth (1990).

Authors: Yan, Zhaoxu.
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Must carry rules
4
must carry rules using statistical analysis. Vita (1997) tested the probability of a station
not carried by a cable system and found that cable systems selling advertising were
actually less likely to drop local stations than non-advertisers. Yan (2002) tested the
effects of horizontal concentration, vertical integration and other market variables on the
number of local stations not carried on cable systems. He found that horizontal
concentration had a negative effect on local signal carriage, but vertical integration did
not have any significant effect. However, the study did not include in its empirical
models any station level variables such as a station’s ratings. This imposes serious
limitation on the study as station-specific variables certainly affect cable operators’
decisions with respect to local signal carriage.
7
In this study, I test the effects of vertical integration and other system-specific,
station-specific and market-specific variables on the probability of a local television
station being carried by a cable system. In the following sections, I first describe the
economic rational for the must carry rules and examine the often-neglected incentives
that cable operators may have in their carriage decisions concerning local stations. I then
discuss the possible effects of structural factors such as vertical integration on cable local
signal carriage decisions. Next, I describe the empirical models and methodology of the
empirical analysis. Finally, I present the study’s results and discuss their policy
implications.
The economics of local signal carriage decisions
Economic (dis)incentives of local signal carriage
The government built its must carry cases around an anticompetitive theory that
7
Other studies that have provided an economic perspective, but not empirical analysis, to the must carry
issues include Vita & Wiegand (1993) and Wirth (1990).


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