This dissertation examines the economics of non-profit institutions in the television industry and agriculture. We analyze two kinds of non-profit institutions: (1) state owned welfare maximizing television broadcasters, and (2) agricultural cooperatives.
We model competition in the television industry under various settings of industry structure (Free to Air and Pay TV), market structure (private economy and mixed economy), and broadcaster entry timing (simultaneous and sequential). We provide theoretical results identifying conditions under which the public provision of television broadcasting services results in a welfare improvement, identify the effects of such provision on competing privately owned broadcasters, and thereby inform the debate in regulatory circles regarding the appropriate disciplines on state broadcasters as well as the appropriate treatment of loss making state broadcasters.
Our main results are as follows. Broadcasters’ decisions on advertising levels and viewer subscription fees are not always more optimal under mixed economy. Social welfare is always higher under mixed economy except in situations where the state broadcaster is at a corner solution for advertising level i.e. 0% advertising level (e.g. BBC, France TV etc.), or 100% advertising level. The optimal regulatory response is not to privatize the state broadcaster, but simply to regulate advertising on the state broadcaster i.e. impose a lower (upper) limit on advertising when there is 0% (100%) advertising level on the state broadcaster. This is because judicious regulation of advertising levels can deliver a welfare improvement greater than could be had by privatization.
Private broadcaster profits are mostly lower under mixed economy, thereby lending credence to their complaints of suffering due to “anti-competitive” actions of state broadcasters. However, no regulatory action is required unless the state broadcaster is at a corner solution for advertising level, since lower private broadcaster profits are consistent with higher welfare under mixed economy. Again, privatization is not the appropriate regulatory response to losses of the state broadcaster. The appropriate response is either judicious regulation of its advertising level, or the provision of budgetary support. As long as the deadweight losses of budgetary support to the state broadcaster do not exceed the welfare gains from having an operational state broadcaster, a welfare argument can be made for the continued existence and operation of loss making state broadcasters.
With regard to agricultural cooperatives, it is the case that in India, most agricultural cooperatives have local area monopoly status in their area of operation (typically a number of villages). One purpose of according local monopoly status to agricultural cooperatives was to rectify the market power imbalance caused by a large number of small farmers facing a few large traders. In light of the findings of the literature on the quantity and quality distorting effects of monopolies, this dissertation investigates the welfare implications of permitting the unregulated operation of monopoly cooperatives in agricultural settings where quality is unobservable and grading capacity is insufficient to grade all available output.
We find that for a given capacity constraint in the grading technology, if the cost of quality is high enough, or if the quality gap between low and high quality output is low enough, the co-op member farmer may provide a greater amount of high quality output at a lower price than the equivalent perfectly competitive farmer. Similarly, for a given cost of quality and a given quality gap between low and high quality output, if the grading capacity is low enough, the co-op member farmer may provide a greater amount of high quality output at a lower price than the equivalent perfectly competitive farmer. In both cases, welfare under the monopoly co-op exceeds that under perfect competition.
The co-op member farmer’s choice of quality is less sensitive to the reduction in grading capacity than that of the competitive farmer. This is because the co-op member farmer, acting through the co-op, has two tools at his disposal to handle the weakened incentive to provide quality—(1) he can reduce quality, and/or (2) he can distort prices. As a result, his reliance on the first tool i.e. quality reduction is less than that of the competitive farmer. Therefore, for a sufficiently low grading capacity, the quality choice of the co-op member farmer will be higher than that of the competitive farmer. Since farmers in both market structures provide sub-optimally low levels of quality in the presence of grading capacity constraints, welfare will be higher under the market structure where the extent of quality under-provision is less i.e. monopoly. We therefore provide a welfare argument for the continued existence and operation of monopoly cooperatives in agricultural settings where quality is unobservable and there are sufficiently tight constraints on grading capacity. (Abstract shortened by UMI.)