Economics textbooks describe bundling as a way for firms to engage in indirect price discrimination. Why then, would Verizon un-bundle?
Verizon Breaks Pay-TV Bundle as Competition Mounts
by: Shalini Ramachandran and Ryan Knutson
Apr 17, 2015
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com
TOPICS: Pricing
SUMMARY: Verizon said its FiOS service will allow customers to choose only certain groups of channels they want to watch. Related article: NBCUniversal and Fox joined ESPN in attacking Verizon for introducing slimmer, cheaper packages of pay-TV channels that they argue violate existing deals.
CLASSROOM APPLICATION: Students can evaluate two dimensions of Verizon's move into mixed bundling. First, Verizon's move into mixed bundling appears to be in response to growing cord-cutting and viewing options. Second, although the article does not address price discrimination, students can evaluate whether base packages plus add-on channel packs is a form of price discrimination.
QUESTIONS:
1. (Introductory) Why is Verizon moving toward channel packs?
2. (Advanced) Is Verizon's offer of a base package plus channel packs a form of price discrimination?
3. (Advanced) Why do big networks like ESPN have power to require a certain percentage of Verizon's customer base while smaller networks do not?
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