Competition between Cable Television and Direct Broadcast Satellite - It's More Complicated than You Think

Abstract

Direct Broadcast Satellite (DBS) is often considered a substitute for basic cable service, but current cable subscribers may face substantial switching costs to move from cable to DBS services. We use aggregate firm-level price data and other related demographic variables to examine the cost of switching from cable to DBS and vice versa. We find some firm-specific attributes and demographic variables that influence consumer choice and switching costs that appear to affect consumers' desire to switch from one service to another. We then use observation-specific dummy variables that stratify cable price based on changes in the level of cable prices between two periods to examine whether consumer behavior varies depending on the size of price change. We find that when quality-adjusted prices for basic cable services increase substantially, subscribers will switch from cable to DBS, presumably at the point at which the price change is larger than the cost of switching.