Does a policy of area expansion and downward tiered charging induce competition between two monopolistic cable franchises?
Date Issued
2016
Date
2016
Author(s)
Chen, Meng-Han
Abstract
In a cable TV market of monopolistic cable system operators (SOs) over small areas, would a policy induce competition among SOs and raise consumer surplus by allowing service area expansion while requiring addition of a downward pricing package? This thesis studies the case of two monopolistic SOs given a new strategy option of service area expansion and addition of a Price-Channel-Downscaled (PCD) package to the existing flat rate (FR) package. Besides the peer-to-peer strategic game between two SOs, modeling consumers’ response to SO strategies is critical to the analysis. Instead of using simple demand functions, this study approach adopts empirical data based simulation and a leader-follower model for interactions between consumers and SO and a Nash game theoretic model between the two SOs. Simulation study based on data of Yong Kang franchise area in Taiwan shows that SOs in two symmetric monopolistic markets will not expand service area but add a PCD package if the amortized entry cost is higher than 2.58% of the current profits. Detailed analysis indicates that the revenue created from market expansion may not necessarily to cover the entry cost, but the addition of a carefully designed PCD package can increase profits of incumbent SO and thus raise the entry barrier. The franchise reform incentive policy ends up having limited effect on breaking monopoly, but it induces SOs to add a downward pricing package and thus increases consumer surplus. This thesis research also report a preliminary study of whether the addition of an advanced channel bundle (ACB) package may increase revenues and induce competition. By allowing SOs to add an optional ACB package while adding a PCD package, the downward scale of PCD package can be further increased, and surplus of consumers and SOs will both be improved due to the increased amount of consumption. Therefore, with appropriate designed PCD and ACB package, regulator can not only increase consumer surplus by tiered charging mode, but also facilitate competition between SOs due to the total revenues increased.
Subjects
cable television service
channel tiered charging
cable franchise policy
monopolistic market
competition
Type
thesis
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