Cable Service and Its Implicit Marginal Valuation

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Abstract:

The objective is to estimate the implicit marginal value of channel offerings by cable systems in the USA. Hedonic analysis is a convenient framework in which to explore the relationship between the price of cable service and the channels offered by a cable system. Two separate hedonic equations are estimated-- one for the price of analog cable service and one for the price of digital cable service. With regard to the price of analog cable service, the implicit marginal valuation is statistically significant and positive for just 15 of 106 channel offerings and negative for seven channels. For the price of digital cable service, the implicit marginal valuation is statistically significant and positive for just eleven of 105 channel offerings and negative for five channels. The results suggest that a subscriber's utility would be enhanced by a pricing structure different from the typical approach used by cable systems today of offering a bundled package consisting of several channels. One alternative is to allow consumers to subscribe to just those programming services for which they have a positive implicit marginal value (i.e. an a la carte pricing structure).

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/0953732042000295838

Affiliations: Federal Communications Commission, Washington, D.C., USA

Publication date: December 1, 2004

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