11/09/2007

Cable Monopoly

Although I know cable companies have very little competition, I didn't realize how much power they have. Consumer groups claim that cable companies treat consumers unfairly because of the lack of competition in this industry. In fact, the Telecommunications Act of 1996, which was intended to prevent such monopolistic power, has possibly been an underlying factor in the increase in cable rates. The article states that since the Act was put in place, cable rates have increased 45%. I believe that the act along with other underlying factors has made it more difficult for competitors to enter the cable industry.

In St. George, I think that Baja is the only cable provider and their rates are definitely not cheap. Recently, Baja added the Mtn. television channel, which has resulted in many consumers leaving satellite providers that don't provide the Mtn. channel in St. George. This is because of loyalty to BYU and U of U sports even if the price is more. Therefore, Baja could probably take advantage of those consumers who switch over to their services because of brand loyalty/sports team loyalty, and it will increase Baja's market power. Cable companies are making a lot of money since they are increasing prices a lot and costs are not increasing very much. I believe that cable services are pretty inelastic since the prices have increased drastically, yet the demand doesn't seem to decrease much. As a matter of fact, I would not be surprised if the demand has increased in the past several years. What do you think? It seems like the prices of cable will continue to increase and their monopolistic power will not diminish soon unless more competition can find a way to enter the market; however, it won't be easy to enter this industry and doesn't seem likely.

3 comments:

Logan said...

I agree with parts of your post, but I do not agree that cable is an unchallengeable market. DSS dishes have made a tremendous dent in cable sales. I personally have one and will never go back to cable.

It is true that there are die-hard fans that will switch to cable to see their favorite sports shows, but if enough of the market did that, the other providers would find a way to offer the same programming because they are not about to give away a significant piece of their pie.

With HD capability being developed currently with the latest version of Adobe Flash and YouTube coupled with the increasing proliferation of broadband internet, you will start to see a shift away from traditional cable and DSS service providers and an increase in internet driven 'television' viewing.

Dr. Tufte said...

I am of two minds on this.

First, cable companies are great examples of government-granted monopolies.

But, having said that, if it was a hugely profitable business, the cable companies would be amongst the biggest in the country, and throwing their weight around in a lot of ways. You just don't see that, but you probably should if you think about how many households subscribe and how much profit they are supposedly making of each home.

William said...

Dr. Tufte,
I agree with you. It seems to me that if the cable companies are really that profitable then this would entice others to enter.