CABLE TELEVISION: RELATIONSHIP BETWEEN REGULATION AND PRICE, QUALITY, AND CONSUMER WELFARE
The problem is that the relationship between regulation and price, quality, and consumer welfare related to cable TV is unclear. Beard,áEkelund, Ford,áand Sabaá(2001) reported that while in the past the cable industry was allowed to increase rates if new channels were offered, pre-1984 cable was regulated by local governments with franchise bidding arrangements that were reliant on cost inflation, and other factors. During this period cable was viewed as a monopoly and this led to deregulation with the Cable Communications Policy Act in 1984, which provided jurisdictional guidelines regarding the regulation of cable television, deregulating different parts of the industry. Following this Act, cable operators were free from rate regulation other than effective competition. This resulted in a growth in cable investments, with increases in improvements and prices. Price increases led to the Cable Act of 1992, which reintroduced local governmental control of rates.
Beard et al. (2001) studied the effect of price-quality tradeoff on consumer welfare related to new regulations of cable TV. Data for more than 11,000 cable systems across the United States were studied which included a sample of 717 systems for analysis. The authors found that the changes in the cable industry due to regulation are neutral, with gains of extra channels counterbalanced by reductions with price increases. While this finding provided some information, all welfare factors were not considered, limiting findings. For example, the study did not calculate net social benefits or costs to society related to regulation. These limited findings imply the need for further study of the variables.
Findings from Beard et al. (2001) demonstrate the need to understand the relationship between regulation of cable TV and price-quality tradeoffs and consumer we...