Saturday, November 5, 2016

A Prisoner's Dilemma in PayTV

Last week, the DOJ announced that it filed a lawsuit against DirecTV for orchestrating and agreement among its MVPD competitors to not carry the Los Angeles Dodger’s channel distributed exclusively by Time Warner Cable (TWC).  In this one-period, simultaneous move game where each competitor (DirecTV, AT&T, Cox, and Charter) was “separately” negotiating a carriage agreement with TWC, the dominant strategy was to pay the high price (estimated at $4.90/month).  It was in their collective interest (“optimal”), however, to negotiate a lower price for the channel or to not carry the channel at all.


In a game of uncertainty, each firm would play its dominant strategy.  To get to the optimal outcome, information on what competitors were up to and assurance to “stick with the plan” was needed.  Allegedly, DirecTV filled that void.  

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