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

49 Pages Posted: 25 Oct 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: September 2017

Abstract

Between 2005 and 2008, nineteen of the fifty 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 per cent 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 that finds larger declines in prices for both ‘Basic’ and ‘Expanded Basic’ services in local markets which faced a greater threat of entry (because they were close to a prominent second entrant). 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 benefited consumers in reformed states.

Suggested Citation

Bagchi, Sutirtha and Sivadasan, Jagadeesh, Barriers to Entry and Competitive Behavior: Evidence from Reforms of Cable Franchising Regulations (September 2017). The Journal of Industrial Economics, Vol. 65, Issue 3, pp. 510-558, 2017, Available at SSRN: https://ssrn.com/abstract=3058452 or http://dx.doi.org/10.1111/joie.12152

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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