souvik101990 wrote:
Most cable television companies currently require customers to subscribe to packages of channels, but consumer groups have recently proposed legislation that would force the companies to offer a la carte pricing. Subscribers would pay less, argue the consumer groups, because they could purchase only the desired channels. However, the cable industry argues that under the current package pricing, popular channels subsidize less-popular ones, providing more options for viewers. For this reason, the industry claims that it is always cheaper for the consumer to purchase many bundled channels than to buy them individually.
Which of the following would be most important for the government to determine before deciding whether to require cable television companies to offer a la carte pricing in order to reduce consumer costs?
A. Whether the total number of channels offered to consumers would decrease, along with programming diversity, as a result of the a la carte pricing structure
B. Whether advertising revenue for the cable television companies would decrease as a result of the a la carte pricing structure
C. Whether the vast majority of consumers would greatly reduce the number of channels purchased if given the option of purchasing them individually
D. Whether cable and satellite companies currently have the ability to buy channels individually from programmers and content providers
E. Whether a la carte subscribers would be required to have new television set-top boxes
This question is part of the GMAT Club Critical Reasoning : Evaluate Revision Project. Cable TV companies - Buy a package of channels (say one of 3 packages of 100 diff channels each). Cost of each package is $120
Consumer group - Allow us to buy channels individually. We will only pay for the channel we want to watch.
Cable TV companies - Popular channels subsidise less-popular ones so you have more channels to watch.
The question asks us this - what will help us evaluate whether buying channels individually will be cheaper?
So we have to specifically evaluate the cost angle.
A. Whether the total number of channels offered to consumers would decrease, along with programming diversity, as a result of the a la carte pricing structure
We don't have to evaluate the diversity angle. We have to focus on whether a la carte will make it cheaper.
B. Whether advertising revenue for the cable television companies would decrease as a result of the a la carte pricing structure
Advertising revenue is irrelevant.
C. Whether the vast majority of consumers would greatly reduce the number of channels purchased if given the option of purchasing them individually
If most people will greatly reduce the number of channels, they will end up paying less. If most people buy almost 100 channels (as in the package), they may end up actually paying more if popular channels do not subsidise the less popular ones. Hence, a la carte may not serve the purpose the consumer group expects it to serve. We do need to evaluate this point to find out whether a la carte pricing will reduce costs.
D. Whether cable and satellite companies currently have the ability to buy channels individually from programmers and content providers
We need that which will help us evaluate the cost angle for consumers.
E. Whether a la carte subscribers would be required to have new television set-top boxes
A one time cost, until and unless it is very high, may not be very relevant if we get monthly savings.
Answer (C)
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