The Korean Economic Review
Regulation of Program Licensing Fee in Korean CATV Industry: Is it Welfare-Improving?
Yong-Jae Choi (Hankuk University of Foreign Studies)Year 2014Vol. 30No. 2
Financial difficulties of small program networks and poor program quality have led theKorea Communication Commission (KCC) to introduce a regulation mandating cableoperators to pay at least 25% of their subscription revenues to cable networks. With thisregulation, KCC intended to provide program networks incentives to deliver high qualityprograms and develop the cable TV industry. However, this regulation was introducedwithout a formal analysis of the optimality of market equilibrium or the effects of theregulation on the industry or social welfare.This paper sets up a simple model focusing on the two-sided market nature of CATVindustry. It is shown that the market equilibrium is generally suboptimal and programquality is below the socially optimal level. When the market equilibrium is suboptimal, theregulation of the licensing fee can improve program quality and social welfare, but cannotachieve the socially optimal equilibrium.