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Fixed Costs and the Product Market Treatment of Preference Minorities

Listed author(s):
  • Steven Berry
  • Alon Eizenberg
  • Joel Waldfogel

It is well documented that, in the presence of substantial fixed costs, markets offer preference majorities more variety than preference minorities. This fact alone, however, does not demonstrate the market outcome is in any way biased against preference minorities. In this paper, we clarify the sense in which the market outcome may in fact be biased against preference minorities, and we provide some conditions for such bias to occur. We then estimate the degree of bias in a particular industry using an empirical model of entry into radio broadcasting with two types of listeners, a preference majority and a minority, and the two types of stations targeting those respective listeners. Listening model estimates are used to infer fixed costs, which can then be used to find optimal station configurations as well as the welfare weights on different groups that rationalize the current configuration. The ensuing estimates reveal welfare weights that are 2-3 times higher for whites than blacks, and 1.5-2 times higher for non-Hispanic than Hispanic, listeners. The difference between the black and Hispanic results arises from the different patterns of importing and exporting: Hispanics listen to non-Hispanic-targeted stations more than blacks listen to white-targeted stations; and whites listen to black-targeted stations more than non-Hispanics listen to Spanish-language stations. Researchers and policy makers might add product markets to labor markets and other contexts that warrant attention for disparate treatment of minorities.

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File URL: http://hdl.handle.net/10.1111/joie.12124
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Article provided by Wiley Blackwell in its journal The Journal of Industrial Economics.

Volume (Year): 64 (2016)
Issue (Month): 3 (09)
Pages: 466-493

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Handle: RePEc:bla:jindec:v:64:y:2016:i:3:p:466-493
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  1. Steven Berry & Alon Eizenberg & Joel Waldfogel, 2016. "Optimal product variety in radio markets," RAND Journal of Economics, RAND Corporation, vol. 47(3), pages 463-497, 08.
  2. Patrick Bayer & Marcus D. Casey & Fernando Ferreira & Robert McMillan, 2012. "Price Discrimination in the Housing Market," Working Papers 12-10, Duke University, Department of Economics.
  3. Mark Armstrong & Simon Cowan & John Vickers, 1994. "Regulatory Reform: Economic Analysis and British Experience," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510790, December.
  4. Katja Seim & Joel Waldfogel, 2013. "Public Monopoly and Economic Efficiency: Evidence from the Pennsylvania Liquor Control Board's Entry Decisions," American Economic Review, American Economic Association, vol. 103(2), pages 831-862, April.
  5. Katja Seim, 2006. "An empirical model of firm entry with endogenous productÔÇÉtype choices," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 619-640, 09.
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