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Mergers, Station Entry, and Programming Variety in Radio Broadcasting

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  • Steven T. Berry
  • Joel Waldfogel

Abstract

Free entry into markets with decreasing average costs and differentiated products can result in an inefficient number of firms and suboptimal product variety. Because new firms and products draw their customers in part from existing products, concentration can affect incentives to enter as well as how to position products. This paper examines how product variety in the radio industry is affected by changes in ownership structure. While it is in general difficult to measure the effect of concentration on other factors such as the number of products and the extent of product variety, the 1996 Telecommunications Act substantially relaxed local radio ownership restrictions, giving rise to a major and exogenous consolidation wave. Between 1993 and 1997 the average Herfindahl index in major US media markets increased by almost 65 percent. Using a panel data set on 243 U.S. radio broadcast markets in 1993 and 1997, we find that concentration reduces entry and increases product variety. Our results are consistent with spatial preemption. Jointly owned stations broadcasting from the same market are more likely than unrelated stations - and more likely than jointly owned stations in different markets - to broadcast in similar formats.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7080.

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Date of creation: Apr 1999
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Publication status: Published as "Free Entry and Social Inefficiency in Radio Broadcasting", RAND Journal of Economics, Vol. 30, no. 3 (Autumn 1999): 397-420.
Handle: RePEc:nbr:nberwo:7080

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  1. Anderson, S. P. & De Palma, A. & Nesterov, Y., . "Oligopolistic competition and the optimal provision of products," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1179, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Kenneth L. Judd, 1983. "Credible Spatial Preemption," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 577, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Richard Schmalensee, 1978. "Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 9(2), pages 305-327, Autumn.
  4. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 43(2), pages 217-35, June.
  5. Steven Berry & Joel Waldfogel, 1996. "Free Entry and Social Inefficiency in Radio Broadcasting," NBER Working Papers 5528, National Bureau of Economic Research, Inc.
  6. Steven T. Berry & Joel Waldfogel, 1997. "Public Radio in the United States: Does It Correct Market Failure or Cannibalize Commercial Stations?," NBER Working Papers 6057, National Bureau of Economic Research, Inc.
  7. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
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Cited by:
  1. Clarissa Yeap, 2006. "The Production Decisions of Large Competitors: Detecting Cost Advantages and Strategic Behavior in Restaurants," Working Papers, Center for Economic Studies, U.S. Census Bureau 06-19, Center for Economic Studies, U.S. Census Bureau.
  2. Lisa George & Joel Waldfogel, 2000. "Who Benefits Whom in Daily Newspaper Markets?," NBER Working Papers 7944, National Bureau of Economic Research, Inc.
  3. Waldfogel, Joel, 2003. " Preference Externalities: An Empirical Study of Who Benefits Whom in Differentiated-Product Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 557-68, Autumn.
  4. Simon P. Anderson & Stephen Coate, 2000. "Market Provision of Public Goods: The Case of Broadcasting," NBER Working Papers 7513, National Bureau of Economic Research, Inc.

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