THE EFFECTS OF VERTICAL INTEGRATION BETWEEN CABLE-TELEVISION SYSTEMS AND PAY CABLE NETWORKS

Using data for 1646 cable systems, we find that vertical integration b etween pay cable programming networks and cable systems has substantia l effects on final market outcomes. Cable systems owned by the two mul tiple system operators (MSOs) having majority ownership lies to four m ajor pay networks tended to carry their affiliated networks more frequ ently and rival networks less frequently than did the average noninteg rated system. These systems also offered fewer pay networks in total t han did the average nonintegrated system. We also find that when carri age differences are accounted for, integrated systems tended to 'favor ' their affiliated networks with respect to pricing or other marketing behavior. The models we employ are obtained From a model selection te chnique involving backward elimination and the Schwarz criterion.