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This paper endeavors to provide policy-relevant information that may be used in the continuing public debate regarding the "appropriate" government role in the expanding telecommunications industry. It argues that the debate over the need to regulate cable operators has been driven by the mistaken assumption that the distribution of television programming is a private good; that the debate has overlooked actual pricing behavior in the industry; and that policymakers have not recognized the policy implications resulting from the sunk cost nature of investment made by cable operators. An empirical section evaluates the effectiveness of current state and local regulations, and suggests that they do not appreciably affect the price-cost margins of cable operators, whereas competition from other sources of video programming does have an impact on the market power of cable firms.

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