Quantitative Marketing and Economics

, Volume 6, Issue 1, pp 41–78

The discriminatory incentives to bundle in the cable television industry



An influential theoretical literature supports a discriminatory explanation for product bundling: it reduces consumer heterogeneity, extracting surplus in a manner similar to second-degree price discrimination. This paper tests this theory and quantifies its importance in the cable television industry. The results provide qualified support for the theory. While bundling of general-interest cable networks is estimated to have no discriminatory effect, bundling an average top-15 special-interest cable network significantly increases the estimated elasticity of cable demand. Calibrating these results to a simple model of bundle demand with normally distributed tastes suggests that such bundling yields a heterogeneity reduction equal to a 4.7% increase in firm profits (and 4.0% reduction in consumers surplus). The results are robust to alternative explanations for bundling.


Bundling Price discrimination Cable television 

JEL Classification

L12 M31 L96 L40 L50 C31 

Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of ArizonaTucsonUSA

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