Review of Industrial Organization 13: 609–612, 1998.
Vertical Integration in Cable Television. David Waterman and Andrew A. Weiss.
Cambridge, MA and Washington, DC: MIT Press and AEI Press, 1997, 185 pages,
David Waterman and Andrew Weiss’s recent book is the eighth in the American
Enterprise Institutes’s studies in telecommunications deregulation. It shares much
with its predecessors. It is intended to guide uninitiated policymakers through the
current understanding of rather arcane regulatory problems. It frames the issues
well, distilling the relevant economic theory to concepts amenable to laymen, and
providing them with factual information and empirical analyses that bear on the
issue. Its authors are well versed in the issues, having published in the area and
provided expert advice to the legal or regulatory arena. In addition to commending
the authors for providing high caliber analyses of a current policy issue, I think the
series editors, Greg Sidak and Paul MacAvoy, are to be commended for producing
a series that can only enhance the quality of policy decisions.
The primary goal of this volume is to examine the effects of integration by cable
TV operators, such as TCI, Time-Warner Cable, and Cox Communication, into
the production of cable TV networks, such as Cable News Network (CNN), Arts
& Entertainment (A&E), and Nickelodeon (NICK). For more than two decades,
policymakers in the U.S. have grappled with what to do about this integration. The
1992 Cable Act contained numerous provisions restricting the behavior of inte-
grated cable operators. The 1996 Telecommunications Act did not directly affect
vertical integration, but it eliminated the ban on local telephone company entry into
the market. Together with technical advances in alternative program delivery, e.g.,
MMDS, SMATV, HSD, and particularly DBS, this suggests a greater potential for
downstream competition. If so, an interesting policy question is whether or not ver-
tical integration has been efﬁcient or if cable operators can hinder this competition
by foreclosing programming.
First, the book reviews the efﬁciency rationales for vertical integration that
might apply to this industry. The likely candidates are alleviating opportunistic
behavior, reducing risk and mitigating the effects of double marginalization. Since
both upstream and downstream ﬁrms often sink resources before production oc-
curs, there is a real potential for opportunistic behavior. Likewise, since developing