Price-Quality Tradeoffs

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 l