Thursday, February 13, 2014

Nice graphic showing the consolidation of the Cable TV provider market since 1990. Is this a good thing? Bad thing? Or just a thing that we have to accept?

In AP Microeconomics we are discussing the various forms firms can take in terms of market concentration: Perfect Competition, Monopolistic Competition, Oligopoly, and Monopoly.

Here is a graphic from the Wall Street Journal that shows the consolidation of the cable TV industry since 1990. There is a nice Q&A regarding some of the details and ramifications of the deal.  If the recent move by Comcast to purchase Time Warner Cable (TWC) goes through there will be 3 main cable providers in the US.

The market is clearly one operating in the mode of an Oligopoly:
Oligopoly is a common market form where a small number of firms are in competition. As a quantitative description of oligopoly, the four-firm concentration ratio is often utilized. This measure expresses the market share of the four largest firms in an industry as a percentage--Wikipedia
 The key question will be how this affects the price of cable.  They would say scales of economies and efficiencies (fancy way of saying duplication of tasks will reduce labor and administrative costs) will keep prices from rising. Economic theory suggests less competition gives the firm more pricing power. There are some substitutes for it, such as satellite, but a significant part of the market is still hardwired for cable.

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