Review of Industrial Organization 14: 273–275, 1999.
Public Policy Toward Cable Television: The Economics of Rate Controls. Thomas
W. Hazlett and Matthew L. Spitzer. Cambridge: The MIT Press and Washington,
DC: The AEI Press, 1997, 253 pages, $32.50.
As all teachers of intermediate microeconomics (and, we hope, most students)
know, the standard theoretical argument for price regulation is that, under certain
market conditions, price regulation can eliminate the deadweight loss that results
from market power by causing the regulated ﬁrm to expand output. A natural
monopoly is, of course, the classic example of an industry where regulation may
be the appropriate policy. Under the simple textbook story, price regulation is suc-
cessful if prices are lowered below the unregulated monopoly price. Perhaps not
surprisingly, the prevailing sentiment in news reports, in congressional debate, and
among consumers about price regulation often follows this textbook view, with
attention focused on price changes as the sole indicator of the success or failure of
a change in a regulatory regime.
Hazlett and Spitzer argue, however, that looking at price alone is insufﬁcient
for evaluating the effect of rate regulation on consumer welfare. Because suppliers
may change the quality of the product in response to regulation, consumers may
either gain or lose when price regulation is imposed on an industry. Evidence in
addition to price needs to be considered. This argument, of course, is not new.
Economists have challenged the simplicity of the standard textbook story since at
least 1962 when George Stigler and Claire Friedland asked what regulators can
regulate. Hazlett and Spitzer continue this challenge by examining the efﬁcacy of
rate regulation in the cable television industry.
The cable television industry serves as a good laboratory for examining rate
regulation. This industry has experienced several changes of regulatory regime
during the past ﬁfteen years: rate controls were removed in the Cable Communica-
tions Policy Act of 1984, reinstituted in the Cable Television Consumer Protection
and Competition Act of 1992, and phased out again in the Telecommunications
Act of 1996. Even within the period of reregulation from 1992 to 1996, different
rules applied during different subperiods. As various changes in regime were being