The copyright to this article is held by the Econometric Society, http:// www.econometricsociety.org/. It may be downloaded, printed and reproduced only for personal or classroom use. Absolutely no downloading or copying may be done for, or on behalf of, any for-profit commercial firm or for other commercial purpose without the explicit permission of the Econometric Society. All other permission requests or questions (including commercial purposes or on behalf of any for-profit entity) should be addressed to: Wiley Permissions www.wiley.com/go/rightslicensing Then select Copyright & Permissions For requests for any content not containing a ‘request permission’ link please contact
[email protected]. Econometrica, Vol. 86, No. 3 (May, 2018), 891–954 THE WELFARE EFFECTS OF VERTICAL INTEGRATION IN MULTICHANNEL TELEVISION MARKETS GREGORY S. CRAWFORD Department of Economics, University of Zurich ROBIN S. LEE Department of Economics, Harvard University MICHAEL D. WHINSTON Department of Economics and Sloan School of Management, MIT ALI YURUKOGLU Graduate School of Business, Stanford University We investigate the welfare effects of vertical integration of regional sports networks (RSNs) with programming distributors in U.S. multichannel television markets. Verti- cal integration can enhance efficiency by reducing double marginalization and increas- ing carriage of channels, but can also harm welfare due to foreclosure and incentives to raise rivals’ costs. We estimate a structural model of viewership, subscription, dis- tributor pricing, and affiliate fee bargaining using a rich data set on the U.S. cable and satellite television industry (2000–2010). We use these estimates to analyze the impact of simulated vertical mergers and divestitures of RSNs on competition and welfare, and examine the efficacy of regulatory policies introduced by the U.S.