A Reply to Regulation and Competition in Cable Television

Abstract

The Comment by Albert Smiley deals with both the economics and policy implications of my analysis. In regard to the economics, it questions the ability of competitive forces to improve consumer welfare in local cable television markets, citing a host of arguments in support of imperfect competition. As he readily concedes, however, the necessary experiment has not been run: what will happen when municipal entry barriers have been removed and firms are free to compete? I have tried to answer this question by way of induction through my analysis of particular markets. Based upon evidence that prices decline and services can improve upon competitive entry, I conclude that consumers would be well served by allowing unpredictable rivalry to proceed. Although one might argue that many or even most markets would fail to experience robust competition, consumers face virtually no downside risk. Thus, the experiment of competition is worth a try in all cable markets.