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Homework answers / question archive / Twenty years ago, cable television companies typically exhibited the following characteristics: a) They were granted the exclusive right to provide cable service to customers in a particular city; e

Twenty years ago, cable television companies typically exhibited the following characteristics: a) They were granted the exclusive right to provide cable service to customers in a particular city; e

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Twenty years ago, cable television companies typically exhibited the following characteristics:

a) They were granted the exclusive right to provide cable service to customers in a particular city; e.g. it was impossible for Comcast and Suddenlink to both offer cable service to Shreveport customers. The companies determined the prices they would charge those customers.

b) For this legal permission, the companies had to pay a franchise fee to the city in which they operated, usually a particular percentage (set by the city) of gross revenue.

c) The companies hired different types of employees: accountants, HR managers, office staff, etc. whose skills were transferrable to other firms, occupations, and industries; and technicians, electricians, and programmers whose skills were not easily transferrable to other firms, occupations, or industries.

d) The companies purchased land from available plots in the city, and purchased capital equipment some of which, again, was transferable to other firms (computers, desks), and some of which was not (equipment specifically designed for cable provision).

For each of the four categories above (customer price, city fee, wages for each type of employee, land price, price for each type of capital), describe how much market power the individual cable company would have in setting the price/fee/wage.

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A) In terms of customer price, they have a high level of market power. The only options consumers had were satellite dishes, which were prone to weather disturbances, or not having cable at all.

B) In terms of the fee paid to the city, the cable companies had a low level of market power. If they demanded a lower fee, then the city could negotiate with another cable company for operating permission.

C) For those positions with transferable skills, the cable company has a low level of market power. Those employees can move to different companies outside the cable industry if they feel they can be compensated better. For the employees without transferable skills, the cable company has a higher level of market power. The employees could seek out employment at another cable company, but that would likely require relocation since cable companies have exclusive rights to areas.

D) For the types of capital that was transferable, the cable company had a low level of market power. If they demanded a lower price, the companies could sell to other industries. For the nontransferable capital, they had a high level of market power. If those companies did not sell to the cable company, they were limited to where they could sell. As for the land, the cable company had almost no market power. Without that they would not be able to provide their service at all and there was no substitute.

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