Tagged: creative destruction

Marginal analysis debunks conflict theory

Intel is attempting to challenge the traditional television content distribution model, with a box that would provide cable channels à la carte. Netflix is starting to stream original content, having just launched their breakthrough House of Cards.

All of this exciting news raises the question of why television content has always been bundled up to this point. A while back, Megan McArdle explained that bundling occurs because the fixed cost of laying cable is quite high, while the marginal cost of providing an additional channel is quite low.

Applying calculus to truly understand marginal analysis is absolutely crucial to understanding cable companies’ behavior. Marginal analysis debunks the narrative that conflict theory would predict: that cable companies deliberately structure their services at the expense of their consumers.

Cable companies aren’t full-fledged monopolies, but they have indeed secured some monopoly power through regulatory capture, since they’ve had to cooperate directly with governments to lay cable on public land. Even so, they still face exogenous demand curves. Bundling isn’t some nefarious conspiracy indicative of limitless corporate power; it’s just the nature of the good itself.

Corporations have, up to this point in time, responded to exogenous demand curves, and now à la carte content is a logical outgrowth of widespread broadband. The proliferation of broadband drives creative destruction. Innovation is beautiful.

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