COMPETITION BETWEEN CABLE TELEVISION AND DIRECT BROADCAST SATELLITE: THE IMPORTANCE OF SWITCHING COSTS AND REGIONAL SPORTS NETWORKS
We use aggregate firm-level price data and other related demographic variables to examine the cost of switching between cable television and direct broadcast satellite (DBS). We find that switching costs appear to affect consumers' desire to switch from one service to another. We then use observation-specific dummy variables that stratify cable price to examine whether consumer behavior varies depending on the size of price change. We find that, when quality-adjusted prices for basic cable services increase substantially, subscribers will switch from cable to DBS, presumably at the point at which the price change is larger than the cost of switching. However, we find some evidence that DBS penetration is suppressed in areas where cable operators offer regional sports channels.
* Senior Economist, Industry Analysis Division, Media Bureau, Federal Communications Commission. Email: andrew.wise{at}fcc.gov.
** Senior Economist, Strategic Analysis and Negotiation Division, International Bureau, Federal Communications Commission. Email: kiran.duwadi{at}fcc.gov. The views and conclusions expressed in this article are those of the authors and do not necessarily reflect the views of the FCC or any of its Commissioners or other staff. Special thanks to Doug Webbink, Christopher Baum, Keith Brown, Gregory Crawford, Jerry Duvall, Marcia Glauberman, Judith Herman, David Sappington, Noel Uri, Tracy Waldon, and Irene Wu, who reviewed earlier versions of this draft. Of course, all remaining errors are ours.