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Price-Quality Tradeoffs

The paper will review the article "Price-quality tradeoffs and welfare effects in cable television markets" by Beard,áEkelund, Ford,áand Sabaá(2001). This study sought to explore the problem of effects of the Telecommunications Act of 1996, which reduced restriction son cable TV. Deregulated rates were provided as of March 1999 and it remained unclear what the effects would be on consumers.

The authors provided an explanation of the problem and pointed out that in the past the cable industry was allowed to increase rates if new channels were offered. Early (pre-1984) cable was regulated by local governments with franchise bidding arrangements. Results of this regulation were reliant on cost inflation, and other factors. Cable at this time was viewed as a monopoly, which led to deregulation with the Cable Communications Policy Act in 1984. This Act provided jurisdictional guidelines regarding the regulation of cable television, deregulating different parts of the industry. Cable operators were then free from rate regulation except when subject to effective competition. This was followed by a growth in cable investments, with accompanied growth in improvements and price increases. These price increases led to the Cable Act of 1992, which reintroduced reducing-rate controls by local governments. Each of the strategies mentioned failed to maximize efficiency and consumer welfare. This study provided a unique methodology to study effects of current legislation.

For this study a measure of the value of quality and a welfare calculation of the price-quality tradeoff were provided. The authors used detailed data for more than 11,000 cable systems across the United States, as provided in the Warren Cable Factbook. A sample of 717 systems from this database were used for the study. Data were also from the City and County Factbook of 1994, which included demographic information that the authors matched to the cable syst...

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Price-Quality Tradeoffs. (1969, December 31). In LotsofEssays.com. Retrieved 02:24, March 29, 2024, from https://www.lotsofessays.com/viewpaper/1689031.html