Crawford, Gregory S. (2008) The discriminatory incentives to bundle in the cable television industry. Quantitative Marketing and Economics, Vol.6 (No.1). pp. 41-78. doi:10.1007/s11129-007-9031-7 ISSN 1570-7156.

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Abstract

An influential theoretical literature supports a discriminatory explanation for product bundling: it reduces consumer heterogeneity, extracting surplus in a manner similar to second-degree price discrimination. This paper tests this theory and quantifies its importance in the cable television industry. The results provide qualified support for the theory. While bundling of general-interest cable networks is estimated to have no discriminatory effect, bundling an average top-15 special-interest cable network significantly increases the estimated elasticity of cable demand. Calibrating these results to a simple model of bundle demand with normally distributed tastes suggests that such bundling yields a heterogeneity reduction equal to a 4.7% increase in firm profits (and 4.0% reduction in consumers surplus). The results are robust to alternative explanations for bundling.

Item Type:	Journal Article
Subjects:	H Social Sciences > HB Economic Theory
Divisions:	Faculty of Social Sciences > Economics
Journal or Publication Title:	Quantitative Marketing and Economics
Publisher:	Springer New York LLC
ISSN:	1570-7156
Official Date:	2008
Dates:	Date Event 2008 Published
Volume:	Vol.6
Number:	No.1
Number of Pages:	38
Page Range:	pp. 41-78
DOI:	10.1007/s11129-007-9031-7
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access

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