Consumer Welfare Effects of Cable-TV Bundling in Nigeria

The practice of selling two or more products together as a bundle, often at a discounted price, can be used by firms to extract consumer surplus by reducing consumer heterogeneity. This article examines the ongoing debate in extant literature on whether consumer welfare would be enhanced, reduced, or remain unchanged, when Cable-TV channels are offered as a bundle or under à la carte pricing where consumers pay only for the channels they wish to receive. Our study employs both descriptive and inferential analyses to interrogate this discourse with empirical evidence from Nigeria. Our results indicate that under the existing bundling regime, subscribers’ welfare is not maximized, as surplus is extracted by firms for up to 96% of subscribers. Surplus extraction is further made possible in the context of the diversity of subscribers’ channel preferences. Our findings also show that subscribers are dissatisfied with the bundling of channels as they would prefer the à la carte pricing system which is more welfare-enhancing. The study contributes to the current empirical and policy debates on regulation of the pricing practices of Cable-TV firms in Nigeria, by recommending an informed price-regulatory policy for the industry