Review of Industrial Organization
12: 501–518, 1997.
1997 Kluwer Academic Publishers. Printed in the Netherlands.
Horizontal Concentration and Vertical Integration in
the Cable Television Industry
GEORGE S. FORD
MCI Telecommunications Corporation, 1801 Pennsylvania Ave. NW, Suite 428, Washington, DC,
JOHN D. JACKSON
Department of Economics, 203 Lowder Business Bldg., Auburn University, AL 36849, U.S.A.
Abstract. In the recent past, the cable industry has exhibited a pronounced tendency toward increased
vertical integration and concentration of cable system ownership. As a result, the 1992 Cable Act
proposed and the Federal Communications Commission implemented restrictions on such activity.
Two antitrust concerns include the size of programming discounts offered to large multiple-system
operators and price and carriage discrimination by vertically integrated programming networks. The
empirical model in this paper attempts to systematically measure the effect of ownership concen-
tration and vertical integration on the programming cost and price of cable operators. We ﬁnd that
concentration and integration lower the programming cost to cable systems afﬁliated with larger
multiple-system operators. These discounts are partially passed along to consumers in the form of
Key words: Cable television, horizontal concentration, vertical integration, empirical, welfare, price.
Concerns regarding anticompetitive behavior by cable companies have pervad-
ed our public policy toward the industry since its inception. An empirical issue
underlying much of these concerns involves the structure of costs in this industry.
Until recently, the primary motivation offered in partial justiﬁcation for government
regulation of local cable television operators, primarily in the form of franchised
monopoly with ensuing entry restrictions, is that its market exhibits characteris-
tics of natural monopoly. This belief stemmed mainly from the high ﬁxed cost
associated with physically laying the cable and the attendant economies of scale
which could be of sufﬁcient size to provide a natural barrier to entry. Whether
MCI Telecommunications Corporation. The analysis and conclusions of this paper represent
those of the author and do not necessarily reﬂect the views of MCI Telecommunications Corporation
or its staff. Comments on the paper can be directed to George S. Ford, MCI Telecommunications Cor-
poration, 1801 Pennsylvania Ave. NW, Suite 428, Washington, DC, 20006 or email at firstname.lastname@example.org.
The authors would like to thank Jerry B. Duvall and David Kaserman and an anonymous referee for
helpful comments and suggestions on earlier drafts of this paper. We are also grateful to Kevin Roth,
Dennis Ryan, and Cindy Craven for data assistance. All remaining errors are the responsibility of the