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Systematic empirical evidence has heretofore been lacking on the extent to which supplier opportunism at the time of contract renewal is a fundamental problem associated with franchise bidding schemes. At least for the case of local cable television distribution, this article suggests several theoretical reasons why bad behavior by an incumbent supplier may be the exception rather than the rule and a simple test for supplier opportunism at the time of franchise renewal. The simple test is employed to empirically analyze the terms of trade in a cross-sectional sample of recent cable franchise renewal contracts.
The RAND Journal of Economics © 1989 RAND Corporation