Regulated Prices as Collective Goods: The Case of New York Cable Systems

This paper examines the extent to which individuals seeking diffuse benefits from a regulator can overcome the free-rider problem. Specifically, I provide an explanation of why cable television rates are not consistently set at either the monopoly price or the competitive price -namely, communities differ in their ability to act collectively or form rent seeking coalitions. A model, motivated by Peltzman (1976) and McChesney (1987, 1996), is presented and the comparative statics of a `potential for collective action' are examined. The model is tested with data on New York State cable firms, using voter turnout as a proxy for the potential for collective action. The results indicate that regulated prices are collective goods and that rent-seeking coalitions at least in part are the beneficiaries of rate regulation. An increase in the potential for collective action lowers the regulated price of basic service and increases the franchise fee paid to a municipality by the firm. 1 The author wishes to thank Nancy Boden and Connie Layer for invaluable research assistance. Claremont Colleges working papers in economics Claremont Graduate University • Claremont Institute for Economic Policy Studies • Claremont McKenna College • Drucker Graduate School of Management • Harvey Mudd College • Lowe Institute • Pitzer College • Pomona College • Scripps College