Does win-win situation exist in a monopolistic cable television service market by adding a price-channel-downscaled package?

In a monopolistic cable television (CATV) service market, it is generally believed that tiered charging is beneficial to consumer surplus as compared to flat rate charging while it is likely to reduce supplier income. Can the addition of a carefully designed Price-Channel-Downscaled (PCD) package to a flat rate (FR) package stimulate enough new subscribers and achieve Pareto improvement between cable operators and consumers? This paper builds, by using empirical data, i) a market model to capture the characteristics of a monopolistic market, ii) a consumer preference model, where consumer preferences are in Gaussian distributions and are additive in individual channel values, and iii) a consumer decision model to describe the choices of consumers. A leader-follower game formulation then describes the interactions between system operators and consumers. Analyses of FR and FR plus PCD packages derive the conditions of consumer preferences and prices and number of channels in a package under which PCD revenue can cover the switching loss from FR to PCD, namely, the conditions that FR plus PCD may lead to Pareto improvement over the current FR only package. Simulation study based on empirical data of Yong Kang franchise area, Taiwan, demonstrates that when the price and number of channels are lowered in a range up to 74% of FR, both consumer surplus (CS) and supplier surplus (SS) increase by introducing the FR plus PCD package with social welfare (SW) gaining a higher percentage than SS.