Is the Canadian Cable Television Industry a Natural Monopoly

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AThe Canadian Cable Television Industry2
IIIExternality Effect10
IIIComparison with Telephone Industry12

1.12003 Market Share of Canadian Cable Companies.2
2.1Canadian Cable Industry5
2.2Rogers Communications Incorporation7
2.3Shaw Communications Incorporation8
2.4Cogeco Cable Company9
3.1Marginal Private Benefit11
3.2Marginal Private Cost11
3.3Demand Schedule of the market12

1.12003 Market Share of Canadian Cable Companies.2
2.1Conventional Depiction of Natural Monopoly4
2.2Measurement of Possibility of Natural Monopoly5
2.3Canadian Cable Television Indusry6
2.4Rogers Communications Incorporations7
2.5Shaw Communications Incorporation8
2.6Cogeco Cable Company10
3.1Externality Effect of Regulation of Cable Industry12



It all started back in 1981 when Vidéotron Ltée and La Presse introduce the first electronic newspaper via cable in Montreal. One year later, The Canadian Radio-television Commission licensed Canada's first pay services and 58% of home televisions were connected to the cable television.

The majority of industry members have formed an association the CCTA – Canadian Cable Televisions Association, to have a unified word when facing regulators, help promote the industry's services. Table 1.1 and figure 1.1 show that CCTA have through its members a control over more than 70% of the Canadian cable services.

Table 1.1Market Control (2003)
ROGERS 30.30%
SHAW 27.20%
COGECO 11.20%
ACCESS 1.00%
OTHER* 26.40%
TOTAL 100%
*less than 50,000 customers each

Figure 1.12003 Market share of Canadian Cable Companies

Since its inception, cable television service has been subject of substantial intervention on the part of regulators in Canada. The Cable television operators are licensed by a single federal regulatory authority, the CRTC. It classifies Licensed Service Areas (LSA) based partly on the current subscription level within the LSA and partly on the quality of broadcast reception available to the service provider.

The issues to be addressed in this paper are the following:
Was the enforced monopoly provision of basic cable television justified?


When a monopoly occurs because it is more efficient for one firm to serve an entire market than for two or more firms to do so, because of the sort of economies of scales available in that market. A common example is water distribution, in which the main cost is laying a network of pipes to deliver water. One firm can do the job at a lower average cost per customer than two firms with competing networks of pipes. Monopolies can arise unnaturally by a firm acquiring sole ownership of a resource that is essential to the production of a good or service, or by a government granting a firm the legal right to be the sole producer. Other unnatural monopolies occur when a firm is much more efficient than its rivals for reasons other than economies of scale. Unlike some other sorts of monopoly, natural monopolies have little chance of being driven out of a market by more efficient new entrants. Thus regulation of natural monopolies may be needed to protect their captive consumers. The conventional illustration of natural monopoly in principles textbooks shows the market demand curve intersecting the long run average cost schedule (LAC) in the region of increasing returns to scale.

Figure 2.1 Conventional Depiction of Natural Monopoly
The modern view of natural monopoly (also called the "New Learning") is based on the concept of subadditivity. That is, the most important feature of natural monopoly is a cost function that is subadditive. If...
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