Barriers to Entry and Competitive Behavior: Evidence from Reforms of Cable Franchising Regulations

82 Pages Posted: 23 May 2013 Last revised: 19 Mar 2017

See all articles by Sutirtha Bagchi

Sutirtha Bagchi

Villanova University - School of Business - Economics

Jagadeesh Sivadasan

University of Michigan, Stephen M. Ross School of Business; University of Michigan at Ann Arbor - Survey Research Center

Multiple version iconThere are 2 versions of this paper

Date Written: January 20, 2017

Abstract

Between 2005 and 2008, 19 of the 50 states of the U.S. reformed the franchising process for cable television, significantly easing entry into local markets. Using a difference-in-differences approach that exploits the staggered introduction of reforms, we find that prices for “Basic” service declined systematically by about 5.5 to 6.8 percent following the reforms, but we find no statistically significant effect on average price for the more popular “Expanded Basic” service. We also find that the reforms led to increased actual entry in reformed states, by about 11.6% relative to non reformed states. Our analysis shows that the decline in price for “Basic” service holds for markets that did not experience actual entry, consistent with limit pricing by incumbents. To control for potential state-level shocks correlated with the reforms, we undertake a sample-split test examining changes in local markets which faced a greater threat of entry (because they were close to a prominent second entrant); we find larger declines in prices, for both “Basic” and “Expanded Basic” services in these markets. Our results are consistent with limit pricing models that predict incumbents respond to increased threat of entry, and suggest that the reforms facilitated entry and modestly benefitted consumers in reformed states.

Keywords: Price competition, Limit pricing, Signaling, Entry deterrence

JEL Classification: L51, L43, L82, L12

Suggested Citation

Bagchi, Sutirtha and Sivadasan, Jagadeesh, Barriers to Entry and Competitive Behavior: Evidence from Reforms of Cable Franchising Regulations (January 20, 2017). Ross School of Business Paper No. 1195, Available at SSRN: https://ssrn.com/abstract=2268646 or http://dx.doi.org/10.2139/ssrn.2268646

Sutirtha Bagchi (Contact Author)

Villanova University - School of Business - Economics ( email )

United States

HOME PAGE: https://sites.google.com/site/sutirthabagchi/

Jagadeesh Sivadasan

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

University of Michigan at Ann Arbor - Survey Research Center ( email )

Ann Arbor, MI
United States

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