Free Entry and Social Inefficiency in Radio Broadcasting
AbstractIn theory, free entry can lead to social inefficiency. We study the radio industry in a first attempt to quantify this inefficiency. Using cross-sectional data on advertising prices, the number of stations, and radio listening, we estimate the parameters of listeners' decisions and of firms' profits. Relative to the social optimum, our estimates imply that the welfare loss (to firms and advertisers) of free entry is 45% of revenue. However, the free entry equilibrium would be optimal if the marginal value of programming to listeners were about three times the value of marginal listeners to advertisers.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 30 (1999)
Issue (Month): 3 (Autumn)
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Web page: http://www.rje.org
Other versions of this item:
- Steven Berry & Joel Waldfogel, 1996. "Free Entry and Social Inefficiency in Radio Broadcasting," NBER Working Papers 5528, National Bureau of Economic Research, Inc.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
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