The Effect Of Satellite Entry On Product Quality For Cable Television

In vertically differentiated markets, the effects of firm entry are contingent upon whether incumbent firms can respond to entry by adjusting product quality in addition to simply lowering prices. Using market-level data, the author estimates a structural model of supply and demand for subscription television that takes into account the endogeneity of quality choice. Using counterfactual analysis, the author decomposes the effect of satellite entry on existing cable into two components: the conventional price response and the effect of endogenous quality adjustments (measured by changes in programming content).