Can Short Term Limits on Strategic Vertical Restraints Improve Long Term Cable Industry Market Performance?

43 Pages Posted: 22 Oct 2004

See all articles by James W. Olson

James W. Olson

Independent

Lawrence J. Spiwak

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Abstract

This article examines the Program Access provisions contained in the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Act"), which sought to promote entry into local distribution markets through interim limits on strategic vertical restraints between vertically integrated cable operators and programmers.

This article argues that by identifying and prohibiting for a limited period certain entry deterring vertical restraints, Congress devised an important tool to implement the goal of improved long term performance of the market for delivered multichannel video programming. Implicit in this approach is the belief that to improve market performance at the distribution level, entry should be vigorously promoted by eliminating vertical restraints to facilitate non discriminatory access to cable programming - even at the expense of possible static economic efficiencies created by those vertical restraints. As explained below, such sacrifice may be necessary in order to achieve more significant dynamic economic efficiencies.

Specifically, although vertical relationships can often have pro competitive effects, under certain market conditions, strategic vertical restraints (achieved by vertical integration, exclusive distribution contracts, or monopsony pressure) can also deter entry into the distribution market for delivered multi-channel video programming. Accordingly, consistent with the trend in recent economic literature, the program access policy requires the Federal Communications Commission ("Commission" or "FCC") to balance the likely competitive harm to consumers created by a particular vertical restraint against the likely efficiency benefits arising from the transaction. By requiring the Commission to identify and eliminate those vertical restraints that can impede entry into the distribution market (i.e., harm competition), the program access policy contributes to the long term market performance of both the distribution market and the programming market, because the entry of competitors in the distribution market provides more outlets for programmers.

Keywords: Cable, vertical integration, program access, multichannel delivered video programming

JEL Classification: K21, K23, L40, L40, L42, L43, L50, L98, L99

Suggested Citation

Olson, James W. and Spiwak, Lawrence J., Can Short Term Limits on Strategic Vertical Restraints Improve Long Term Cable Industry Market Performance?. Available at SSRN: https://ssrn.com/abstract=607743

James W. Olson

Independent ( email )

Lawrence J. Spiwak (Contact Author)

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

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