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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title The welfare effects of endogenous quality choice in cable television markets
Organization Unit
  • Gregory S. Crawford
  • Oleksandr Shcherbakov
  • Matthew Shum
  • English
Institution University of Zurich
Series Name Working paper series / Department of Economics
Number 202
ISSN 1664-7041
Number of Pages 40
Date 2015
Abstract Text We measure the welfare consequences of endogenous quality choice in imperfectly competitive markets. We introduce the concept of a "quality markup" and measure the relative importance for welfare of market power over price versus market power over quality. For U.S. cable-television markets between 1997-2006, we find that prices are 33% to 74% higher and qualities 23% to 55% higher than socially optimal. This "quality inflation" contradicts classic results in the literature and reflects our flexible specification of consumer preferences. Furthermore, we find market power over quality is responsible for 54% of the total welfare change from endogenous prices and qualities.
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Keywords Industrial organization, endogenous quality, imperfect competition, monopoly, cable television, quality distortions, welfare, quality markup, Industrieökonomie, Qualität, Unvollständige Konkurrenz, Marktmacht, Preisstruktur, Wohlstand, Kabelfernsehen, USA