Review of Industrial Organization 19: 129–147, 2001.
© 2001 Kluwer Academic Publishers. Printed in the Netherlands.
How Much Will Consumers Pay? A Hedonic
Analysis of the Cable Television Industry
DIANE BRUCE ANSTINE
North Central College, Department of Economics, 30 North Brainard Street, Naperville, IL
Abstract. Because cable television is the classic example of a bundled commodity, it is difﬁcult to
determine how consumers value individual cable networks offered on a typical system. This paper
uses a modiﬁed hedonic framework to determine the marginal willingness to pay by consumers
for individual cable networks. The traditional hedonic framework is adapted to allow for the lack
of competition on the supply side of the market. It is clear that consumers do value some types of
programming more than other types. Sports, news, and family programming all have positive implicit
prices while program guides have negative marginal prices.
Key words: Bundling, cable television, hedonic.
Each year, more and more cable networks are available to consumers. Cable oper-
ators trumpet the addition of such networks as ESPN Classic Sports or Animal
Planet to their cable systems. With each upgrade, the price of cable television
increases as well.
Do all consumers really want the new channels? Why can’t
consumers buy only the channels they will watch? Cable television has become
the textbook example of a bundled commodity. Consumers must purchase a pre-
determined grouping of channels (a “tier”) from the cable operator without being
able to choose only the cable networks they would desire. The only “a la carte”
programming available on cable are the pay networks such as Home Box Ofﬁce or
The Movie Channel (and those too are offered in various bundles).
This paper was part of the author’s dissertation at the University of Kentucky. The author is
very grateful to Frank Scott for his guidance as dissertation advisor. Further, the author would like to
thank the editor of this journal and two anonymous referees for their helpful comments.
According to a General Accounting Ofﬁce report documenting the changes in the rates and
service offered by cable operators from the time of the ﬁrst deregulation of the industry at the
end of 1986 to 1991, rates for the lowest priced service increased 56% and the average subscriber
received 6 additional networks. This time frame corresponds to the data used in this analysis (General
Accounting Ofﬁce, 1991, p. 5).