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UBC Theses and Dissertations

Essays on competitive strategies in the broadcasting television industry Liu, Yong

Abstract

This thesis presents theoretical models to address market structure and competitive strategy issues in the broadcasting television industry, where technological and regulatory changes have greatly increased the scope of competition. Stating with a static game, the thesis shows that first, the broadcasters choose an intermediate level of differentiation (i.e., they "counter program"). Second, having more channels available does not always make viewers better-off. For certain ranges of the cost of quality provision, viewers are better served in a market with fewer competitors. Third, rather than impeding the number of competitors, the high cost of providing quality programs actually allows a greater number of broadcasters to exist profitably in the industry. The model is extended to incorporate the lead-in effect, an important dynamic factor in television viewing. Interestingly, viewers can be better-off in the dynamic model than in the static model, even though the "switching cost" exists for the broadcasters to lock in viewers. The distribution of customer preferences has a main effect on competitive behavior. The equilibria show strong rigidity when the cost of quality provision varies within certain ranges for uniform and bipolar distributions. However, such rigidity ceases to exist in an unimodal distribution. A monopolist would set a higher quality level than the duopolists for certain ranges of the cost parameter. This, again, leads to the finding that customers can be better-off in the monopoly market. This result disappears if customer distribution is very bipolar. An analytical framework is then set up to address the debate on the retransmission fee for broadcasting signals. While the broadcasters do not want to give away for free their valuable television programs, the cable operators simply do not want to pay. The analysis indicates that in certain ranges of the two important parameters, the cost of quality provision and the advertising rate, the cable operator actually receives greater profit in a fee system than in a no-fee system. The fee helps the cable operator stabilize its profit levels as the advertising market changes. It can also work as a coordinating instrument to improve the overall profitability of the distribution channel.

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